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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934 For the Fiscal Year Ended December 31, 1997
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period
from_______to______
Commission File No. 0-20847
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GENESEE & WYOMING INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0984624
- -------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
71 Lewis Street, Greenwich, Connecticut 06830
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(203) 629-3722
- --------------
(Telephone No.)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
- ------------------- -------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.01 par value
-------------------------------------
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulations S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. []
Aggregate market value of Class A Common Stock and Class B Common Stock held by
non-affiliates based on closing price on March 25, 1998: $107,012,798.
Shares of common stock outstanding as of the close of business on
March 25, 1998:
Class Number of Shares Outstanding
- ----- ----------------------------
Class A Common Stock 4,447,833
Class B Common Stock 845,539
Documents incorporated by reference and the Part of the Form 10-K into which
they are incorporated are listed hereunder.
PART OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE
- ----------------- ----------------------------------
Part III, Items 10, 11, 12 and 13 Registrant's proxy statement to be
issued in connection with the Annual
Meeting of the Stockholders of the
Registrant to be held on May 12,
1998.
The remainder of this page is intentionally left blank.
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PART I
ITEM 1. BUSINESS
Genesee & Wyoming Inc. (the "Registrant" or the "Company") is a holding
company whose subsidiaries own and operate short line and regional freight
railroads and provide related rail services. The Company, through its
industrial switching subsidiary, also provides railroad switching and related
services to United States industries with extensive railroad facilities within
their complexes. The Company's predecessor, Genesee and Wyoming Railroad
Company, was founded in 1899 by E.L. Fuller and his partners. In 1977, when
Mortimer B. Fuller, III purchased a controlling interest in the Company and
became its Chief Executive Officer, the Company was dependent on a single
commodity, salt, produced by a single customer. At that time, the Company
generated $3.9 million in operating revenues over its 14 miles of track. In
1978, under the leadership of Mr. Fuller, the Company began a strategy of
diversifying its sources of revenues, initially in the railcar leasing business
and then through rail line acquisitions and the acquisition of Rail Link, Inc.,
which provides railroad switching and related services. In 1997, the Company's
growth expanded beyond domestic operations to include the Australia Southern
Railroad ("ASR") a new railroad operation which provides freight services in
South Australia, and Genesee Rail-One Inc. ("GRO") a Canadian company in which
the Company has 47.5% ownership interest. GRO owns and operates two short line
railroads in Canada. As a result of the Company's acquisition and marketing
strategies, the Company has become a diversified rail operation extending over
approximately 2,400 miles of track, 1,500 miles of which are in the United
States and 900 miles of which are in Australia. With the addition of the
industrial switching subsidiary in 1996 and Australia Southern Railroad in 1997,
the Company now serves over 300 customers in 15 states in the United States and
10 major customers in Australia.
INDUSTRY OVERVIEW
The railroad industry in the United States has undergone significant
change since the passage of the Staggers Rail Act of 1980 (the "Staggers Rail
Act"), which deregulated the pricing and types of services provided by
railroads. Since 1980, Class I railroads in the United States and Canada have
taken aggressive steps to improve profitability and recapture market share. In
furtherance of that goal, these Class I railroads have focused their management
and capital resources on their long-haul core systems, and certain of them have
sold branch lines to smaller and more cost-efficient rail operators that are
willing to commit the resources necessary to meet the needs of the shippers
located on these lines. Divestment of branch lines enables Class I carriers to
minimize incremental capital expenditures, concentrate traffic density, improve
operating efficiency and avoid traffic losses associated with rail line abandon
ment.
The commitment of Class I carriers to increase efficiency and
profitability has also led to an increase in merger activity among long haul
railroads, such as the mergers between Union Pacific Corporation and Chicago and
North Western Holdings Corp., Burlington Northern Inc. and Santa Fe Pacific
Corporation, Union Pacific Corporation and Southern Pacific Rail Corporation
and, most recently, the acquisition of Consolidated Rail Corporation by Norfolk
Southern Corp. and CSX Transportation, Inc. These consolidations present both
risk and opportunity for the Company. For example, the split up of Conrail will
impact the Company's New York and Pennsylvania railroads. Until the details of
this split up reach greater clarity, the Company is unable to determine the
impact on its operations, particularly in New York and Pennsylvania.
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The Company believes that there will continue to be opportunities to
acquire lines from Class I railroads in the United States and that there may be
opportunities to make acquisitions among the over 500 existing short line and
regional railroads. The Company believes there may be additional acquisition
opportunities in Australia as the state and federal governments seek
privatization of the railway system. The Company believes there may be
acquisition opportunities in Canada and Mexico as well, although governmental
regulations may limit acquisition opportunities in these countries. Both
Canadian National Railway Company and Canadian Pacific Limited have divestment
programs, and Mexico has begun a privatization program of the National
Railroad of Mexico which includes the disposition of rail lines.
STRATEGY
The Company's strategy is to become the dominant provider of rail freight
transportation in the markets it serves by (i) growing its business through
acquisitions to establish new regions or increase its presence in existing
regions, (ii) expanding its revenue base within each region through marketing
efforts, and (iii) improving its operating efficiency through rationalization
and consolidation of overhead expenses. The Company's growth to date has been
the result of the acquisition of rail properties, which has expanded the
Company's customer base and diversified its commodity mix, and its marketing
efforts.
Acquisition of Rail Properties
The Company seeks to expand its business through the selective acquisition
of rail properties, both in new regions and in regions in which it currently
operates. The Company's fundamental acquisition strategy is to identify
properties that have large industrial customers which will provide the Company
with a stable revenue base and the potential to generate incremental revenues
and additional customers upon implementation of a focused marketing plan. In
new regions, the Company targets rail properties that have adequate size to
establish a presence in the region, provide a basis for growth in the region and
attract qualified management. When acquiring rail properties in its existing
regions, in addition to seeking properties with large industrial customers, the
Company targets rail properties where it believes the successful implementation
of its operating strategy is likely to generate significant operating
efficiencies.
In evaluating acquisition opportunities, the Company considers, among
other matters, the size of the rail operations, opportunities for expansion,
commodity and customer diversification, revenue stability, connecting carriers,
track condition and maintenance requirements, and expected financial returns.
The Company also considers acquisition opportunities that have the potential to
enable its railroads to provide better or more cost-effective service to major
shippers or to increase and diversify the overall customer base of its
railroads. The Company develops acquisition prospects through its relationships
with Class I carriers and its reputation in the industry. In addition, the
Company uses consultants to assist in the identification and development of
acquisition opportunities. The Company has successfully integrated twelve
acquisitions of varying sizes and operating characteristics, of which four were
existing short lines, six were Class I divestitures, one was a governmental
privatization and one was an industrial switching company which also operates
four wholly-owned subsidiary companies.
The Company acquires rail properties by purchase of assets, or is able to
serve a market through lease or operating contract. Typically, the Company bids
against other short line and regional operators for available properties. The
structure of each transaction is determined based upon economic and
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strategic considerations. In addition to the financial terms of the transaction,
sellers consider more subjective criteria such as a prospective acquiror's
operating experience, its reputation among shippers, and its ability to close a
transaction and commence operations smoothly. The Company believes it has
established an excellent record in each of these areas. In addition, by growing
revenues on its acquired lines and providing improved service to shippers, the
Company is able to provide increased revenue to the Class I carriers that
connect with its lines. The Company sees this ability to provide increased
revenue to Class I carriers as an advantage in bidding for properties.
Marketing
The Company's marketing strategy is to build each region on a base of
major industrial customers, to grow that base business through marketing efforts
directed at its major customers, and to generate incremental revenues outside
the base of major customers by attracting smaller customers and providing
ancillary services which generate non-freight revenues. The Company believes
that over the long term, its strategy of building its regions around a core of
major industrial customers provides a stable revenue base and allows the Company
to focus its efforts on additional growth opportunities within a region. Of the
15 domestic customers that generated freight revenues in excess of $1 million in
1997, all but 3 depend exclusively on the Company for rail service to support
their facilities, and the Company believes that each of these facilities is
strategically important to the respective customers. While the other 3 customers
are not dependent on the Company, the Company's railroads provide the best route
for them to move their products by rail. Through implementation of its marketing
strategy, the Company intends to increase further the number of major customers
so that, over time, the Company's reliance on any one customer will be reduced.
Consistent with its decentralized management structure, the Company's
sales and marketing activity is coordinated in each region by a marketing
manager. The marketing manager works closely with personnel of each of the
Company's railroads and with other department heads to develop marketing plans
to inc rease shipments from existing customers and develop new business. The
Company focuses on providing rail service to its customers that is easily
accessible, reliable and cost-effective. The Company considers all of its
employees to be customer service representatives and encourages them to initiate
and maintain regular contact with shippers.
Because most of the traffic transported by the Company's railroads in the
United States is interchanged with Class I carriers, the Company's marketing
efforts are often aimed at enhancing its railroads' relationships with these
Class I carriers as well as shippers. The Company provides related rail
services such as railcar leasing, railcar repair, switching, storage, weighing
and blocking and bulk transfer, which enable Class I carriers and customers to
move freight more easily and cost-effectively. For example, the Company
supplies cars to its customers or its railroads when, among other things, a
customer has a need which cannot be filled by cars supplied by Class I railroads
or the Company has an opportunity to provide cars on a cost basis that both
meets customer needs and improves the economics of a freight move to the
Company. The Company actively manages its railcar portfolio, buying and selling
equipment to take advantage of changes in market value in conjunction with
changes in its customers needs.
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Operations
The Company's operating strategy is to increase efficiency and
profitability in each region in which it operates. When acquiring new rail
properties within an existing region, the Company capitalizes on operating
efficiencies created by the presence of its other railroads within that region.
For example, in connection with its Pittsburg & Shawmut acquisition, the Company
plans to liquidate 42 miles of track and was able to sell a number of
locomotives and railcars. In addition, consolidation of revenue and accounting
functions often allows the Company to operate new railroads with fewer
employees, as was the case with both its Illinois & Midland and Pittsburg &
Shawmut acquisitions. The Company rationalizes its track, where appropriate, to
make its operations more efficient. Rationalizations are planned on Buffalo &
Pittsburgh, Louisiana & Delta and Pittsburg & Shawmut in 1998. The estimated
salvage value of property to be rationalized exceeds its book value. The Company
also seeks and grants trackage rights to improve regional rail infrastructure
efficiency.
The Company intends to continue to improve the operating efficiency of its
railroads by track rehabilitation, especially where maintenance has been
deferred by the prior owner. Because of the importance of certain of the
Company's shippers to the economic stability and/or development of the regions
where they are located, and because of the importance of certain of the
Company's railroads to the economic infrastructure of those regions,
approximately $21.1 million in state and federal grants for track rehabilitation
and service improvements has been invested in the Company's rail properties
since 1987.
MANAGEMENT
The Company's Chief Executive Officer and Chief Financial Officer have
responsibility for overall strategic and financial planning. The Chief Executive
Officer has ultimate operating oversight over Australia and the Chief Operating
Officer, a position created and filled in November, 1997, oversees operations in
the United States. The Company believes that through its decentralized
management structure it has developed a culture that encourages employees to
take initiative and responsibility which is rewarded through performance-based
profit sharing and bonus programs.
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RAILROAD OPERATIONS - UNITED STATES
Domestic Customers
The Company's domestic railroads and switching operations currently serve
over 300 customers. A large portion of the Company's domestic operating
revenues is attributable to customers operating in the electric utility, forest
products, petroleum and chemical industries. As the Company acquires new
railroad operations, the base of customers and industries served continues to
grow and diversify. The largest ten customers, which is a group that changes
annually, accounted for approximately 37%, 49% and 50% of the Company's domestic
revenues in 1997, 1996 and 1995, respectively. In 1997 and 1996, the Company's
largest customer was Commonwealth Edison, an electric utility, which accounted
for approximately 15% and 18% of the Company's revenues in 1997 and 1996,
respectively. Through 1995, the Company's largest customer was Akzo Nobel Salt,
Inc. ("Akzo"), which accounted for approximately 9% of operating revenue in
1995. Since 1994, revenues from Akzo have been negatively affected by the
flooding of the Akzo mine. See Item 7. of this Report under the heading "Akzo
Mine". The Company typically ships freight pursuant to transportation contracts
among the Company, its connecting carriers and the shipper. These contracts are
in accordance with industry norms and vary in duration from one to seven years.
Domestic Commodities
The Company's domestic railroads transport a wide variety of commoditie s
for their customers. Some of the Company's railroads have a well-diversified
commodity mix while others transport one or two principal commodities. In 1997,
coal, coke and ores and petroleum products were the two largest commodity groups
transported by the Company's railroads, constituting 31.7% and 12.3%,
respectively, of total domestic freight revenues (see Item 7. of this Report
under the heading "Results of Operations - Year Ended December 31, 1997 Compared
to Year Ended December 31, 1996"), and 37.4% and 7.9%, respectively, of total
domestic carloads. The following table summarizes the aggregate traffic volume
of the Company's domestic railroads by commodity group:
DOMESTIC CARLOADS CARRIED BY COMMODITY GROUP
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
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Commodity Group Carloads % of total Carloads % of total
- --------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Coal, Coke & Ores 82,269 37.4% 81,606 40.5%
Petroleum Products 17,456 7.9% 17,549 8.8%
Pulp & Paper 20,760 9.4% 19,480 9.7%
Lumber & Forest Products 18,171 8.3% 17,135 8.5%
Metals 21,268 9.7% 20,218 10.0%
Chemicals 10,496 4.8% 8,289 4.1%
Farm & Food Products 13,390 6.1% 11,402 5.7%
Autos & Auto Parts 6,496 3.0% 6,301 3.1%
Minerals & Stone 12,657 5.8% 9,066 4.5%
Other 16,743 7.6% 10,261 5.1%
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Total 219,706 100.0% 201,307 100.0%
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</TABLE>
Coal, coke and ores consist primarily of shipments of coal to utilities
and industrial customers.
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Petroleum products consist primarily of fuel oil and crude oil.
Pulp and paper consist primarily of inbound shipments of pulp and outbound
shipments of kraft and fine papers.
Lumber and forest products consist primarily of finished lumber used in
construction, particleboard used in furniture manufacturing, and wood chips and
pulpwood used in paper manufacturing.
Metals consist primarily of scrap metal and finished steel products
shipped to and from two steel mills, and coated pipe.
Chemicals consist primarily of various chemicals used in manufacturing.
Farm and food products consist primarily of sugar, molasses, rice and
other grains and fertilizer.
Autos and auto parts consist primarily of finished automobiles.
Minerals and stone consist primarily of gravel and stone used in
construction.
Domestic Rail Traffic
Domestic rail traffic is classified as on-line or overhead traffic. On-
line traffic is traffic that either originates or terminates with shippers
located on a railroad and is interchanged with another rail carrier. On-line
traffic that both originates and terminates on a railroad is referred to as
local traffic. Overhead traffic neither originates nor terminates on a
railroad, but rather passes over a railroad from one connecting carrier to
another.
The Company believes that on-line shipments provide it with a stability of
revenues because such traffic represents shipments to or from shippers loc ated
along its lines which cannot easily be diverted to other rail carriers. While
overhead traffic is more easily diverted, it is less costly to handle. To
offset the potential for diversion of overhead traffic, the Company has sought
long-term contracts on its significant overhead traffic. In 1997, 7.6% of
domestic freight revenues was generated by overhead traffic compared to 8.9% in
1996.
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The following table summarizes domestic freight revenues by type of
traffic carried by the Company's railroads.
DOMESTIC FREIGHT REVENUES BY TRAFFIC TYPE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
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TRAFFIC TYPE AMOUNT % OF TOTAL AMOUNT % OF TOTAL
- ------------ ------ ----------- ------ ----------
On-line
<S> <C> <C> <C> <C>
Originated $22,537 33.3% $19,796 31.8%
Terminated 33,435 49.4% 31,492 50.5%
Local 5,154 9.7% 5,507 8.8%
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Total On-line 61,126 92.4% 56,795 91.1%
Overhead 6,587 7.6% 5,521 8.9%
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Total Traffic $67,713 100.0% $62,316 100.0%
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</TABLE>
Safety
GWI's safety program involves all employees and focuses on the prevention
of accidents and injuries. The Senior Vice President of each region is
accountable for the results of the program, and each has an officer responsible
for day-to-day program administration. Line supervisors have direct
responsibility for the safety and training of their personnel.
The Company maintains a corporate-wide safety policy facilitated by a
full-time Safety Director. The Company's safety program also gives each
railroad the flexibility to develop its own safety rules based on local
requirements or practices. Each railroad complies fully with all federal, state
and local government regulations. Operating personnel are trained and certified
in train operations, hazardous materials handling, proper radio procedures and
all other areas subject to governmental rules and regulations.
The Company also participates in governmental and industry sponsored
safety programs. Members of the Company's management serve on the Board of
Directors of Operation Lifesaver (the national grade crossing awareness
program), the New Program Committee of Operation Lifesaver and the American
Short Line and Regional Railroad Association Safety Committee. In addition, the
Company has a working team consisting of the safety officers from each
railroad. This team is charged with ongoing development and refinement of the
Company's safety program and coordination with each railroad to insure
compliance with and implementation of all safety rules and regulations.
Domestic Employees
As of December 31, 1997, the Company had 771 full-time employees. Of this
total, 158 are members of national labor organizations. The Company has seven
contracts with these national labor organizations which have expiration dates
ranging from July 1998 to January 2000. The Company has also entered into
collective bargaining agreements with an additional 69 employees who represent
themselves, all of which expire in 1999.
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RAILROAD OPERATIONS - AUSTRALIA
ASR commenced operations in November 1997. ASR acquired certain freight
railroad assets of Australian National, a railroad company owned by the
Commonwealth Government of Australia. Coincident with closing the purchase, the
Company sold certain facilities and inventories to two third parties who are
under long-term contracts with ASR to perform locomotive, rolling stock and
track infrastructure maintenance and repairs. Approximately 900 miles of
branchline track structure is owned and exclusively maintained by ASR through
one of the two third parties. The land under the track structure is leased from
the State of South Australia for a 50 year term. Some of these branchlines are
isolated from other parts of the system. Also, different parts of the system
have different track gauges, that is, narrow, standard and wide gauge, and ASR
must provide discrete locomotives and rolling stock for each gauge. In some
cases dual gauge track is in place. Under contract ASR also operates unit trains
on a 153 mile branchline owned by a customer.
ASR operates unit trains for six major customers, hauling six types of
commodities including grain, coal and gypsum. It provides switching, rail yard
storage and other rail related facilities for hire to customers. ASR also
acquired contracts to operate "hook and pull" trains for three customers. Unlike
the United States, the Australian system guarantees open access to rail lines.
ASR provides locomotive, fuel, train crews, and in some cases railcars, to
freight fowarding companies. These freight fowarding companies, ASR's customers,
contract for blocks of time within which their trains can be operated at certain
designated speeds. They are responsible for track access charges and all other
costs of operating these trains. ASR operates hook and pull trains for three
customers over the 2,100 mile corridor between Melbourne and Perth. Certain of
ASR's branchline trains operate over these main lines as well. ASR is not
responsible for maintenance of these main lines.
As of December 31, 1997, ASR had about 150 employees, with about 125
operational staff being members of a union. The contract with the union expires
in November, 2000.
INSURANCE
The Company has obtained for each of its railroads insurance coverage for
losses arising from personal injury and for property damage in the event of
derailments or other accidents or occurrences. The liability policies have
self-insured retentions ranging from $100,000 to $250,000 per occurrence. In
addition, the Company maintains an excess liability policy which provides
supplemental coverage for losses in excess of primary policy limits. With
respect to the transportation of hazardous commodities, the Company's liability
policy covers sudden releases of hazardous materials, including expenses related
to evacuation. Personal injuries associated with grade crossing accidents are
also covered under the Company's liability policy. The Company also maintains
all-risk property damage coverage, subject to a standard pollution exception and
self-insured retentions ranging from $10,000 to $250,000.
Employees of the Company's United States railroads are covered by the
Federal Employers' Liability Act ("FELA"), a fault-based system under which
injuries and deaths of railroad employees are settled by negotiation or
litigation based on the comparative negligence of the employee and the employer.
FELA-related claims are covered under the Company's liability insurance
policies.
ASR liability policies have self-insured retentions ranging from $70,000
per occurrence to a one-time deductible of $700,000 for rolling stock. Employees
are covered for injury or death by public and private sector insurance
arrangements. A levy is paid by ASR to the insurance provider based on the
amount of wages and salaries paid by ASR.
The Company believes its insurance coverage is adequate in light of its
experience and the experience of the rail industry. However, there can be no
assurance as to the adequacy, availability or cost of insurance in the future.
COMPETITION
In acquiring rail properties, the Company competes with other short line
and regional railroad operators, some of which are larger and have greater
financial resources than the Company. Competition for rail properties
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is based primarily upon price, operating history and financing capability. The
Company believes its established reputation as a successful acquiror and
operator of short line rail properties, in combination with its managerial and
financial resources, effectively positions it to take advantage of acquisition
opportunities.
Each of the Company's railroads is typically the only rail carrier
directly serving its customers; however, the Company's railroads compete
directly with other modes of transportation, principally motor carriers and, to
a lesser extent, ship and barge operators. The extent of this competition
varies significantly among the Company's railroads. Competition is based
primarily upon the rate charged and the transit time required, as well as the
quality and reliability of the service provided, for an origin-to-destination
transportation package. To the extent other carriers are involved in
transporting a shipment, the Company cannot control the cost and quality of such
service. Cost reductions achieved by major rail carriers over the past several
years have generally improved their ability to compete with alternate modes of
transportation.
REGULATION
The Company's railroads are subject to regulation by the Surface
Transportation Board ("STB"), the Federal Railroad Administration ("FRA"), state
departments of transportation and some state and local regulatory agencies. The
STB is the successor to certain regulatory functions previously administered by
the Interstate Commerce Commission. Established by the ICC Termination Act of
1995 ("ICCTA"), the STB has jurisdiction over, among other things, service
levels and compensation of carriers for use of their railcars by other carriers.
It also must authorize extension or abandonment of rail lines, the acquisition
of rail lines, and consolidation, merger or acquisition of control of rail
common carriers; in limited circumstances, it may condition such authorization
upon the payment of severance benefits to affected employees. The STB may
review rail carrier pricing only in response to a complaint concerning rates
charged for transportation where there is an absence of effective competition.
The FRA has jurisdiction over safety and railroad equipment standards and also
assists in coordinating projects for railroad route simplification.
In 1980, the Staggers Rail Act fundamentally changed federal regulatory
policy by emphasizing the promotion of revenue adequacy (the opportunity to earn
revenues sufficient to cover costs and attract capital) for the railroads and
allowing competition to determine to a greater extent rail prices and route and
service options. The ICCTA continues the trend towards limiting regulation of
rail prices. As a result of these changes in legislative policy, the railroad
industry's rate structure has evolved from a system of interrelated prices that
applied over different routes between the same points to a combination of market
based prices that are now subject to limited regulatory constraints. While
federal regulation of rail prices has been significantly curtailed, federal
regulation of services continues to affect profitability and competitiveness in
the railroad industry.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment, which have
become increasingly stringent. These environmental laws and regulations, which
are implemented principally by the Environmental Protection Agency and
comparable state agencies, govern the management of hazardous wastes, the
discharge of pollutants into the air and into surface and underground waters,
and the manufacture and disposal of certain substances. There are no material
environmental claims currently pending or, to the
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Company's knowledge, threatened against the Company or any of its railroads. In
addition, the Company believes that the operations of its railroads are in
material compliance with current laws and regulations. The Company estimates
that any expenses incurred in maintaining compliance with current laws and
regulations will not have a material effect on the Company's earnings or capital
expenditures. However, there can be no assurance that the current regulatory
requirements will not change, or that currently unforeseen environmental
incidents will not occur, or that past non-compliance with environmental laws
will not be discovered on the Company's properties.
The Commonwealth of Australia has acknowledged that certain portions of
the leasehold and freehold land acquired under the Sale and Purchase Agreement
by ASR contains contamination arising from activities associated with previous
operators. The Commonwealth has provided a release and indemnity to ASR from
obligations, duty or liability arising from pre-existing contamination. The
Commonwealth is required to remediate the relevant land to existing
environmental standards and for the purpose for which the land was used at the
date of the Sale and Purchase Agreement (or the date on which the land was last
used).
FORWARD-LOOKING STATEMENTS
This Report and the documents incorporated herein by reference may contain
forward-looking statements based on current expectations, estimates and
projections about the Company's industry, management's beliefs and assumptions
made by management. Words such as "anticipates," "intends," "plans," "believes
," "seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are no
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to forecast. Therefore, actual results may
differ materially from those expressed or forecast in any such forward-looking
statements. Such risks and uncertainties include, in addition to those set
forth in this Item 1 and in Item 7, hereof, those noted in the documents
incorporated by reference. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
ITEM 2. PROPERTIES
The Company currently operates 16 railroads of which 15 are in the United
States and one is in Australia. These rail properties typically consist of the
track and the underlying land. Real estate adjacent to the railroad rights-of-
way is generally retained by the seller, and the Company's holdings of such
property are not material. Similarly, the seller typically retains mineral
rights and rights to grant fiber optic and other easements in the properties
acquired by the Company's railroads. The Company's railroad in Australia
operates over approximately 900 miles of track structure which is owned by the
Company. The land on which the track structure is built is leased from the State
of South Australia for a term of 50 years with a conditional right of renewal
for an additional 15 years.
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The following table sets forth certain information as of December 31, 1997
with respect to the Company's domestic railroads:
<TABLE>
<CAPTION>
CONNECTING
RAILROAD AND LOCATION TRACK MILES STRUCTURE CARRIERS (1)
- --------------------- ----------- --------- --------
<S> <C> <C> <C>
Allegheny & Eastern Railroad, Inc.
("ALY") Pennsylvania 153 (2) Owned BPRR, CR
Bradford Industrial Railroad, Inc. ("BR")
New York, Pennsylvania 4 (3) Owned BPRR, CR
ALY, BLE, BR, CN,
Buffalo & Pittsburgh Railroad, Inc. CP, CR, CSX, NS,
("BPRR") New York, Pennsylvania 279 (4) Owned/Leased PS, RSR, SB
The Dansville & Mount Morris Railroad
Company ("DMM") New York 8 Owned/Leased GNWR
Genesee and Wyoming Railroad Company
("GNWR") New York 26 (5) Owned (5) CP, CR, DMM, RSR
Pittsburg & Shawmut Railroad, Inc. ("PS")
Pennsylvania 224 (6) Owned BPRR, CR
Rochester & Southern Railroad, Inc. BPRR, CP, CR,
("RSR") New York 66 (7) Owned GNWR, NS
BNSF, CR, IAIS,
Illinois & Midland Railroad, Inc. ("IMR") IC, NS, PPU, TPW,
Illinois 97 (8) Owned UP
Portland & Western Railroad, Inc. BNSF, UP, WPRR,
("PNWR") Oregon 198 (9) Owned/Leased POTB
Willamette & Pacific Railroad, Inc.
("WPRR") Oregon 185 (10) Leased UP, PNWR
Louisiana & Delta Railroad, Inc. ("LDRR")
Louisiana 87 (11) Owned/Leased UP
Carolina Coastal Railway, Inc. ("CLNA")
North Carolina 17 (12) Leased NS
Commonwealth Railway, Inc. ("CWRY")
Virginia 17 (13) Owned/Leased NS
Talleyrand Terminal Railroad ("TTR")
Florida 10 (14) Leased NS, CSX
Corpus Christi Terminal Railroad, Inc.
("CCPN") Florida 26 (15) Leased UP, BNSF, TM
</TABLE>
Note: GWI Switching Services, L.P. is no longer included in this table as the
operating agreement under which it provided switching services to a
Dayton, Texas plastic pellet car storage yard was terminated in December,
1997.
(1) See Legend of Connecting Carriers following this table.
(2) In addition, ALY operates by trackage rights over 3 miles of CR.
(3) In addition, BR operates by trackage rights over 14 miles of BPRR.
(4) Includes 92 miles under perpetual leases and 9 miles under a lease expiring
in 2090. In addition, BPRR operates by trackage rights over 27 miles of CSX
under an agreement expiring in 2018, and 83 miles of CR under an agreement
expiring in 2027. The Company is seeking abandonment and rationalization of
approximately 58 miles of owned track that parallels track the BPRR
operated over under the CR trackage right agreement.
(5) Track has been conveyed to a county industrial development agency and
leased back to GNWR. The operations of the GNWR have been realigned with
those of RSR. See Item 7. of this report.
(6) In addition, PS operates over 13 miles pursuant to an operating contract.
The assets of PS were acquired on April 29, 1996.
(7) In addition, RSR has a haulage contract over 52 miles of CP.
(8) In addition, IMR operates by trackage rights over 15 miles of IC, 9 miles
of PPU and 5 miles of UP. The assets of IMR were acquired on February 8,
1996.
(9) Includes 53 miles under lease expiring in 2015 with a 10-year renewal
unless terminated by either party, 53 miles formerly under lease which was
purchased in November, 1997, and is operated under a rail service easement
and 92 miles which was purchased in July, 1997. In addition, PNWR operates
by trackage rights over 2 miles of UP and 4 miles of POTB.
(10) All under lease expiring in 2013, with renewal options subject to both
parties' consent. In addition, WPRR operates over 41 miles of UP under a
concurrent trackage rights agreement.
(11) Includes 14 miles under a lease expiring in 2011. In addition, LDRR
operates by trackage rights over 91 miles of UP under an agreement
terminable by either party after 1997 and has a haulage contract with M.A.
Patout & Sons over 4 miles of track.
(12) All leased on a month-to-month basis under a Lease and Option to Purchase
Agreement which commenced in 1989. The Company acquired CLNA on November 9,
1996.
13
<PAGE>
(13) Includes 12.5 miles under lease expiring in 2009. The Company acquired CWRY
on November 9, 1996.
(14) All under lease expiring in 1999. The Company acquired TTR on November 9,
1996.
(15) All under lease expiring in 2002. The Company acquired CCPN on August 3,
1997.
LEGEND OF CONNECTING CARRIERS
BLE Bessemer and Lake Erie Railroad Company
BNSF Burlington Northern Santa Fe Railway Company
CN Canadian National
CP Canadian Pacific Railway
CR Consolidated Rail Corporation
CSX CSX Transportation, Inc.
IAIS Iowa Interstate Railroad, Ltd.
IC Illinois Central Railroad Company
NS Norfolk Southern Corp.
POTB Port of Tillamook Bay Railroad
PPU Peoria & Pekin Union Railway
SB South Buffalo Railway Company
TM The Texas Mexican Railway Company
TPW Toledo, Peoria & Western Railway Corp.
UP Union Pacific Railroad Company
EQUIPMENT
As of December 31, 1997, rolling stock of the Company's domestic
railroads consisted of 175 locomotives and 1,875 freight cars, some of which
were owned and some of which were leased from others. The Company's rolling
stock for its subsidiary in Australia consisted of approximately 80 locomotives
and approximately 1,200 wagons (freight cars) owned and in service.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in certain lawsuits resulting from railroad and
industrial switching operations, one of which includes the commencement of a
criminal investigation. Management believes that the Company has adequate
defenses to any criminal charge which may arise and that adequate provision has
been made in the financial statements for any expected liabilities which may
result from disposition of such lawsuits. While it is possible that some of the
foregoing matters may be resolved at a cost greater than that provided for, it
is the opinion of management that the ultimate liability, if any, will not be
material to the Company's results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
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14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On June 24, 1996, the Company's Class A Common Stock began trading and is
quoted on the Nasdaq National Market. Its trading symbol is GNWR. The tables
below show the range of high and low actual trade prices for the Company's Class
A Common Stock during each quarterly period of 1997 and 1996, since its initial
public offering.
YEAR ENDED
DECEMBER 31, 1997 HIGH LOW
----------------- ---- ---
1st Quarter $37.75 $29.00
2nd Quarter $31.75 $26.25
3rd Quarter $35.00 $24.00
4th Quarter $31.75 $22.50
YEAR ENDED
DECEMBER 31, 1996 HIGH LOW
----------------- ---- ---
1st Quarter N/A N/A
2nd Quarter $21.00 $18.25
3rd Quarter $30.50 $18.50
4th Quarter $35.75 $25.25
The Company's Class B Common Stock is not publicly traded.
The Company did not pay cash dividends in 1997. Prior to the initial
public offering on June 24, 1996, the Company paid dividends in the first
quarter of 1996 aggregating $32,000. The Company does not intend to pay cash
dividends for the foreseeable future and intends to retain earnings, if any, for
future operation and expansion of the Company's business. Any determination to
pay dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
by the Board of Directors.
On March 16, 1998 there were 109 holders of record of the Company's Class
A Common Stock and 11 holders of record of the Company's Class B Common Stock.
During 1997 the Company issued the following securities which were not
registered under the Securities Act of 1933, as amended (the "Act"). Each of
such issuances was made by private offering in reliance on the exemption from
the registration provisions of the Act provided by Section 4(2) of the Act:
(1) On July 25, 1997 the Company issued to one of its non-employee
directors, for no additional consideration, options under the Genesee & Wyoming
Inc. Stock Option Plan for Outside Directors to purchase an aggregate of 2,000
shares of Class A Common Stock at an exercise price of $26.00 per share. The
shares issuable upon exercise of such options were the subject of
15
<PAGE>
a Registration Statement on Form S-8 under the Act. These options were forfeited
on October 27, 1997, when the non-employee director resigned his directorship to
accept a senior management position with the Company.
(2) On October 27, 1997 the Company issued to one of its non-employee
directors, for no additional consideration, options under the Genesee & Wyoming
Inc. Stock Option Plan for Outside Directors to purchase an aggregate of 2,000
shares of Class A Common Stock at an exercise price of $28.50 per share. The
shares issuable upon exercise of such options are the subject of a Registration
Statement on Form S-8 under the Act.
The remainder of this page is intentionally left blank.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated income statement data and selected
consolidated balance sheet data of the Company for the years ended December 31,
1997, 1996, 1995, 1994 and 1993, have been derived from the Company's
consolidated financial statements. All of the information should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this Annual Report on Form 10-K. See also Item 7. of this
Report.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
INCOME STATEMENT DATA: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating revenues $103,643 $ 77,795 $53,387 $55,419 $49,645
Operating expenses 87,200 63,801 46,815 47,381 43,501
Operating income 16,443 13,994 6,572 8,038 6,144
Interest expense (3,349) (4,720) (3,405) (3,212) (2,864)
Other income 345 651 456 192 165
Income before income taxes,
extraordinary item and cumulative
effect of accounting change 13,439 9,925 3,623 5,018 3,445
Income taxes (5,441) (4,020) (1,472) (2,007) (1,428)
Income before extraordinary item and
cumulative effect of accounting
change 7,998 5,905 2,151 3,011 2,017
Extraordinary item -- -- (494) -- --
Cumulative effect of accounting
change (1) -- -- -- -- (393)
Net income $ 7,998 $ 5,905 $ 1,657 $ 3,011 $ 1,624
Basic earnings per common share:
Income before extraordinary item and
cumulative effect of accounting
change $1.52 $ 1.54 $ 0.92 $ 1.31 $ 0.88
Extraordinary item -- -- (0.21) -- --
Cumulative effect of accounting
change (1) -- -- -- -- (0.18)
Net income $1.52 $ 1.54 $ 0.71 $ 1.31 $ 0.70
Dividends per common share (2) -- $ 0.01 $ 0.08 $ 0.03 $ 0.05
Weighted average number of shares of
common stock 5,250 3,829 2,348 2,304 2,304
BALANCE SHEET DATA AS OF PERIOD END:
Total assets $210,532 $145,339 $78,429 $69,888 $63,653
Total debt 74,144 18,731 39,941 32,640 35,095
Stockholders' equity 68,343 61,683 10,548 9,082 6,074
</TABLE>
(1) Represents the adoption, as of January 1, 1993, of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions."
(2) Prior to the initial public offering on June 24, 1996, the Company paid
dividends at the discretion of the Company's Board of Directors. The
Company did not pay cash dividends after the initial public offering. The
Company does not intend to pay cash dividends for the foreseeable future
and intends to retain earnings, if any, for future operation and expansion
of the Company's business.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes included elsewhere in this Annual Report.
GENERAL
The Company is a holding company whose subsidiaries own and operate short line
and regional freight railroads and provide related rail services. The Company,
through its industrial switching subsidiary, also provides freight car switching
and related services to United States industries with extensive railroad
facilities within their complexes. The Company generates revenues primarily
from the movement of freight over track owned or operated by its railroads. The
Company also generates non-freight revenues primarily by providing freight car
switching and related rail services such as railcar leasing, railcar repair and
storage to industries with extensive railroad facilities within their complexes,
to shippers along its lines, and to the Class I railroads that connect with its
lines.
The Company's operating expenses include wages and benefits, equipment rents
(including car hire), purchased services, depreciation and amortization, diesel
fuel, casualties and insurance, materials and other expenses. Car hire is a
charge paid by a railroad to the owners of railcars used by that railroad in
moving freight. Other expenses generally include property and other non-income
taxes, professional services, communication and data processing costs and
general overhead expense.
When comparing the Company's results of operations from one reporting period
to another, the following factors should be taken into consideration. The
Company has historically experienced fluctuations in revenues and expenses such
as one-time freight moves, customer plant expansions and shut-downs, railcar
sales, accidents and derailments. In periods when these events occur, results
of operations are not easily comparable to other periods. Also, much of the
Company's growth to date has resulted from acquisitions. The Company completed
two acquisitions during the first four months of 1996, one in November 1996, and
another in November 1997. Because of variations in the structure, timing and
size of these acquisitions and differences in economics among the Company's
railroads resulting from differences in the rates and other material terms
established through negotiation, the Company's results of operations in any
reporting period may not be directly comparable to its results of operations in
other reporting periods.
GENESEE & WYOMING AUSTRALIA PTY. LTD.
On August 28, 1997 the Company announced that its wholly owned subsidiary,
Genesee & Wyoming Australia Pty. Ltd. ("GWIA"), had been awarded the contract to
purchase certain selected assets of the railroad freight operation of SA Rail, a
division of Australian National Railway which is controlled by the Commonwealth
Government of Australia (see Note 2. to Consolidated Financial Statements). SA
Rail provides intrastate freight services in South Australia, interstate haulage
of contract freight, rolling stock rental and maintenance, and interstate track
maintenance. GWIA bid as part of a consortium including EDI Clyde Engineering
and Transfield Pty. Ltd. EDI Clyde is a major Australian provider of railway
rolling stock and holds the Australian license for GM/EMD locom otives.
Transfield is a major Australian engineering, construction and infrastructure
maintenance provider. On November 8, 1997, GWIA closed on the purchase of the
assets and commenced operation of railroad freight service under the name of
Australia Southern Railroad Pty. Ltd. The assets were acquired for
approximately $33.1 million, including related costs.
18
<PAGE>
The assets consist primarily of road and track structure, railroad rolling stock
and other equipment. The acquisition of assets was partially financed through
two new debt agreements in the aggregate amount of $22.2 million (see Note 9. to
Consolidated Financial Statements).
JOINT VENTURE - GENESEE RAIL-ONE INC.
The Company has formed a joint venture, Genesee Rail-One Inc. ("GRO") to
acquire railroads in Canada. GRO is a joint venture with Rail-One Inc. ("Rail-
One"), a subsidiary of The Cygnus Group which is an integrated transportation
facilities, services and infrastructure provider in Canada. The Company's
initial capital investment in GRO was approximately $4,913,000. On December 31,
1997, the Company's investment was $4,852,000 after adjustment for losses in
equity of unconsolidated affiliates (see Note 3. to Consolidated Financial
Statements). Based on GWI's ownership portion of 47.5%, the Company is
reporting the results of operations of GRO under the equity method of accounting
for investments. The results of operations of GRO are translated into U.S.
dollars at a weighted average exchange rate for each period. In addition, the
Company has loaned Rail-One, its joint venture partner in GRO, $4,613,000
through a promissory note denominated in Canadian currency (see Note 4. to
Consolidated Financial Statements). During 1997, GRO acquired two railroads in
Canada.
AKZO MINE
Prior to 1995, the Company's major customer was Akzo Nobel Salt, Inc.
("Akzo"), which operated a rock salt mine in Retsof, New York. In March 1994 a
section of the mine's roof collapsed, causing flooding from an underground
aquifer, and the mine closed in September 1995. Akzo actively pursued
construction of a new mine throughout 1995, but in April 1996 it announced that
it was abandoning the mine project and that the Retsof location would be
converted to a rock salt distribution center. In August 1996 Akzo announced its
intentions to sell all of its North American mining operations, with the
exception of the Retsof mine, to Cargill, Incorporated ("Cargill"), effectively
ending the plan for a distribution center. On February 11, 1997 an investment
group announced a plan to acquire all rights of Akzo and build a new mine in the
Retsof area. Development of this mine is contingent upon obtaining adequate
financing and regulatory approvals and permits. As of February 1998, the
investment group continues to pursue the regulatory approvals and permits
necessary for this new mine.
There were no freight revenues attributable to Akzo in 1997. Freight revenues
attributable to Akzo totaled $62,000 in 1996 and $1.9 million in 1995. The
flooding and subsequent closure did not affect non-freight revenues, which
consist primarily of income from railcar leases under long-term contracts, from
Akzo and its successor, Cargill. Non-freight revenues from Cargill in 1997 were
$3.2 million. Non-freight revenues from Akzo totaled $3.4 million and $2.9
million in 1996 and 1995, respectively.
YEAR 2000 COMPLIANCE
The Company is executing a plan to ensure its systems are compliant with the
requirements to process transactions in the Year 2000. The Company's systems
include internal financial systems and systems provided by third parties for the
transportation operations and certain revenue and expense account processing
related specifically to the rail industry. The Company believes that the costs
necessary to make its internal financial systems Year 2000 compliant will be
immaterial. The Company is communicating with its third party vendors to
coordinate Year 2000 compliance. The Company's rail related systems require
data provided through an industry association. Year 2000
19
<PAGE>
compliance by the industry association is planned but is not in the Company's or
its third party vendors' control. The Company believes that it will be able to
achieve Year 2000 compliance; however, no assurance can be given that these
efforts will be successful.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Operating Revenues
Operating revenues were $103.6 million in 1997 compared to $77.8 million in
1996, an increase of $25.8 million or 33.2%. This increase was attributable to
a $11.7 million increase in freight revenues coupled with a $14.1 million
increase in non-freight revenues.
Freight revenues were $74.0 million in 1997 compared to $62.3 million in 1996,
an increase of $11.7 million or 18.7%. Of this increase, $6.3 million or 10.1%
is freight revenue from a new subsidiary with operations in Australia (see Note
2. to Consolidated Financial Statements) and $5.4 million or 8.6% is from an
increase in domestic freight revenue. The following table compares domestic
freight revenues, carloads and average freight revenues per carload for 1997 and
1996:
DOMESTIC FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(EXCEPT AVERAGE PER CARLOAD)
<TABLE>
<CAPTION>
AVERAGE
FREIGHT
REVENUES
FREIGHT REVENUES CARLOADS PER CARLOAD
---------------- -------- -----------
% OF % OF % OF % OF
COMMODITY GROUP 1997 TOTAL 1996 TOTAL 1997 TOTAL 1996 TOTAL 1997 1996
- --------------- ----- ----- ---- ----- ---- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COAL, COKE & ORES $21,452 31.7% $20,368 32.7% 82,269 37.4% 81,606 40.5% $ 260 $ 250
PETROLEUM PRODUCTS 8,349 12.3% 8,679 13.9% 17,456 7.9% 17,549 8.8% 478 495
PULP & PAPER 7,920 11.7% 7,223 11.6% 20,760 9.4% 19,480 9.7% 381 371
LUMBER & FOREST
PRODUCTS 6,093 9.0% 5,302 8.5% 18,171 8.3% 17,135 8.5% 335 309
CHEMICALS 5,761 8.5% 4,317 6.9% 10,496 4.8% 8,289 4.1% 548 521
METALS 5,188 7.7% 5,211 8.4% 21,268 9.7% 20,218 10.0% 243 258
FARM & FOOD PRODUCTS 3,865 5.7% 3,537 5.7% 13,390 6.1% 11,402 5.7% 288 310
AUTOS & AUTO PARTS 3,452 5.1% 3,316 5.3% 6,496 3.0% 6,301 3.1% 531 526
MINERALS & STONE 3,346 4.9% 2,572 4.1% 12,657 5.8% 9,066 4.5% 264 283
OTHER 2,287 3.4% 1,791 2.9% 16,743 7.6% 10,261 5.1% 136 175
------- ----- ------- ----- ------- ----- ------- ----- ----- -------
TOTAL $67,713 100.0% $62,316 100.0% 219,706 100.0% 201,307 100.0% $ 308 $ 310
======= ===== ======= ===== ======= ===== ======= ===== ===== =======
</TABLE>
The increase in domestic freight revenues was largely attributable to having a
full year of operations in 1997 on acquisitions made during 1996. These
acquisitions generated freight revenues of $22.6 million during 1997 compared to
$19.0 million during 1996, an increase of $3.6 million. Approximately $2.0
million of this increase resulted from the shipment of coal which was offset by
a decrease of approximately $875,000 in the shipment of coal on existing
operations, for a net increase in freight revenue from the shipment of coal of
$1.1 million. Other significant increases in freight revenues were $1.4 million
in chemicals and plastics, $791,000 in lumber and forest products,
20
<PAGE>
$774,000 in minerals and stone, and $697,000 in pulp and paper. All remaining
commoditie s had slight increases and decreases which when netted result in an
increase of approximately $607,000.
Non-freight revenues were $29.6 million in 1997 compared to $15.5 million in
1996, an increase of $14.1 million or 91.3%. Revenues from switching and
storage activities were $18.7 million in 1997 compared to $6.2 million in 1996,
an increase of $12.5 million or 201.1%. The increase in switching and storage
revenues was largely attributable to the full year of operations on acquisitions
made during 1996, which generated switching and storage revenues of
approximately $15.4 million during 1997 compared to $2.3 million in 1996 for an
increase of $13.1 million. Revenues from car hire and car rentals were $6.3
million in 1997 compared to $4.5 million in 1996, an increase of $1.8 million or
39.1%. Approximately $750,000 of this increase in revenue from car hire and car
rentals is from new operations in Australia (see Note 2. to Consolidated
Financial Statements). The balance consists of $700,000 of increases on
existing operations and $350,000 of increases on acquisitions made during 1996.
Operating Expenses
Operating expenses for domestic and foreign operations combined were $87.2
million in 1997 compared to $63.8 million for domestic operations only in 1996,
an increase of $23.4 million or 36.7%. Expenses attributable to operations in
Australia which began in November, 1997, represented $6.7 million or 28.7% of
the change, increases in expenses associated with acquisitions made in 1996
represented approximately $17.2 million or 73.6% of the change, and expenses on
existing operations decreased approximately $550,000 or 2.3% of the change.
The Company's operating ratio increased to 84.1% in 1997 from 82.0% in 1996.
The following table sets forth a comparison of the Company's operating
expenses in 1997 and 1996:
<TABLE>
<CAPTION>
OPERATING EXPENSE COMPARISON
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1997 1996
---- ----
% OF % OF
OPERATING OPERATING
$ REVENUE $ REVENUE
-- ------- -- -------
<S> <C> <C> <C> <C>
Labor and benefits $37,397 36.1% $25,197 32.4%
Equipment rents 8,938 8.6% 8,511 10.9%
Purchased services 6,411 6.2% 3,398 4.4%
Depreciation and amortization 6,999 6.8% 6,052 7.8%
Diesel fuel 6,147 5.9% 4,433 5.7%
Casualties and insurance 5,554 5.4% 4,626 5.9%
Materials 4,495 4.3% 3,486 4.5%
Other 11,260 10.8% 6,738 8.7%
Special charge 0 0.0% 1,360 1.7%
------- ---- ------- ----
Total $87,200 84.1% $63,801 82.0%
======= ==== ======= ====
</TABLE>
21
<PAGE>
Labor and benefits expense was $37.4 million in 1997 compared to $25.2 million
in 1996, an increase of $12.2 million or 48.4%. The increase was attributable
to increases of $9.6 million from acquisitions made in 1996, $899,000 from
operations in Australia which began in November, 1997, and $1.7 million from
increases on existing operations. Labor costs increased as a percentage of
revenues to 36.1% in 1997 compared to 32.4% in 1996. This increase is primarily
due to the labor-intensive nature of Rail Link, Inc.'s industrial switching and
other rail-related services operation.
Equipment rents were $8.9 million in 1997 compared to $8.5 million in 1996, an
increase of $427,000 or 5.0%. The increase was attributable to increases of
$333,000 from acquisitions made in 1996, $81,000 from operations in Australi a
and $13,000 from increases on existing operations. However, equipment rents
decreased to 8.6% of operating revenue in 1997, from 10.9% in 1996. This is
mainly because the largest component of equipment rents, car hire expense,
decreased to 4.7% of operating revenue in 1997 from 5.8% of operating revenue in
1996 due to a low car hire to revenue ratio for Rail Link, Inc. and no car hire
for Australia Southern Railroad.
Purchased services were $6.4 million in 1997 compared to $3.4 million in 1996,
an increase of $3.0 million or 88.6%. The increase was attributable to
increases of $417,000 from acquisitions made in 1996, $2.3 million from
operations in Australia and $298,000 from increases on existing operations.
Depreciation and amortization expense was $7.0 million in 1997 compared to
$6.1 million in 1996, an increase of $947,000 or 15.6%. The increase is a net
change and reflects increases in depreciation and amortization related to
acquisitions made in 1996 of $1.2 million, depreciation attributable to
operations in Australia of $246,000, and a decrease in depreciation on existing
operations of $479,000.
Casualties and insurance expense, including claims brought under the Federal
Employers' Liability Act, was $5.6 million in 1997 compared to $4.6 million in
1996, an increase of $928,000 or 20.0%. The increase was attributable to
increases of $267,000 from acquisitions made in 1996, $347,000 from operations
in Australia and $314,000 from increases on existing operations. The increases
of $267,000 from acquisitions made in 1996 and $314,000 from existing operations
were due to an increase in derailment expense of $628,000 less a net reduction
in third party claims and insurance premiums of $47,000.
Materials expense was $4.5 million in 1997 compared to $3.5 million in 1996,
an increase of $1.0 million or 28.9%. The increase was attributable to
increases of $723,000 from acquisitions made in 1996, $134,000 from operations
in Australia and $152,000 from increases on existing operations.
Special charge expense of $1.4 million in 1996 represents the impairment of
assets of $1.1 million and employee severance and pension termination expense of
$220,000 related to the Company's realignment of operations and decision to
close certain supporting facilities of one of its subsidiaries resulting from
the closure of the Akzo mine (see Note 5. to Consolidated Financial Statements
and "Akzo Mine" above).
Interest Expense and Income Taxes
Interest expense was $3.3 million in 1997 compared to $4.7 million in 1996, a
decrease of $1.4 million or 29.0%. The decrease reflects the repayment of $45.8
million of debt on June 28, 1996, from the proceeds of the initial public
offering combined with other reductions to debt using cash generated from
operations, offset in part by increased debt related to the financing of a new
acquisition in Australia, an investment in a Canadian company that operates two
railroads in Canada, and a new capital lease for equipment.
22
<PAGE>
The Company's effective income tax rate was 40.5% in 1997 and 1996,
respectively.
Net Income
The Company's net income in 1997 was $8.0 million compared to net income in
1996 of $5.9 million, an increase of $2.1 million or 35.4%.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Operating Revenues
Operating revenues were $77.8 million in 1996 compared to $53.4 million in
1995, an increase of $24.4 million or 45.7%. This increase was attributable to
a $19.9 million increase in freight revenues coupled with a $4.5 million
increase in non-freight revenues.
Freight revenues were $62.3 million in 1996 compared to $42.4 million in 1995,
an increase of $19.9 million or 46.9%. The following table compares freight
revenues, carloads and average freight revenues per carload for 1996 and 1995:
<TABLE>
<CAPTION>
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(EXCEPT AVERAGE PER CARLOAD)
AVERAGE
FREIGHT
REVENUES
FREIGHT REVENUES CARLOADS PER CARLOAD
---------------- -------- -----------
% of % of % of % of
Commodity Group 1996 total 1995 total 1996 total 1995 total 1996 1995
- --------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores $20,368 32.7% $ 2,656 6.3% 81,606 40.5% 12,398 10.5% $ 250 $ 214
Petroleum Products 8,679 13.9% 8,487 20.0% 17,549 8.8% 17,559 14.8% 495 483
Pulp & Paper 7,223 11.6% 6,797 16.1% 19,480 9.7% 18,667 15.7% 371 364
Lumber & Forest
Products 5,302 8.5% 4,496 10.6% 17,135 8.5% 14,022 11.8% 309 321
Metals 5,211 8.4% 4,458 10.5% 20,218 10.0% 17,014 14.3% 258 262
Chemicals 4,317 6.9% 3,321 7.9% 8,289 4.1% 6,641 5.6% 521 500
Farm & Food Products 3,537 5.7% 2,756 6.5% 11,402 5.7% 5,778 4.9% 310 477
Autos & Auto Parts 3,316 5.3% 3,490 8.2% 6,301 3.1% 6,381 5.4% 526 547
Minerals & Stone 2,185 3.5% 1,407 3.3% 6,766 3.4% 4,189 3.5% 323 336
Salt 387 0.6% 2,215 5.2% 2,300 1.1% 7,865 6.6% 168 282
Other 1,791 2.9% 2,268 5.4% 10,261 5.1% 8,159 6.9% 175 278
------- ----- ------- ----- ------- ----- ------- ----- ----- -----
Total $62,316 100.0% $42,352 100.0% 201,307 100.0% 118,673 100.0% $ 310 $ 357
======= ===== ======= ===== ======= ===== ======= ===== ===== =====
</TABLE>
The increase in freight revenues was largely attributable to the operations on
new acquisitions, which generated freight revenues of $19.0 million during 1996,
$17.1 million of which were from the shipment of coal. Freight revenue from the
shipment of coal on existing operations also increased by approximately
$600,000. The Company realized $1.8 million in additional freight revenues in
1996 attributable to the acquisition in 1995 of a rail line in the Oregon region
which generated freight revenues of $2.5 million in 1996 compared to $673,000 in
1995. The majority of this $1.8 million increase in the Oregon region is in
lumber and forest products, farm and food products,
23
<PAGE>
metals and other commodities. The overall increase in freight revenues was
partially offset by a $1.8 million decrease in freight revenues from the
shipment of salt to $387,000 in 1996 from $2.2 million in 1995. This decrease
was attributable to the loss of shipments resulting from the closing of the Akzo
mine at Retsof, New York. See Note 5. to Consolidated Financial Statements and
"Akzo Mine " above.
Non-freight revenues were $15.5 million in 1996 compared to $11.0 million in
1995, an increase of $4.5 million or 40.9%. Revenues from car hire and car
rentals was $4.5 million in 1996 compared to $3.2 million in 1995, an increase
of $1.3 million or 40.6%. The increase in revenues from car hire and rentals
was largely attributable to the operations on new acquisitions, which generated
car hire and rental revenues of $817,000 during the period. Car hire and rental
revenues on existing operations increased approximately $483,000, primarily from
a gain on the sale of railcars of $593,000. Revenues from switching and storage
activities were $6.2 million in 1996 compared to $3.6 million in 1995, an
increase of $2.6 million or 72.2%. The increase in switching and stora ge
revenues was largely attributable to the operations on new acquisitions, which
generated switching and storage revenues of approximately $2.3 million during
the period.
Operating Expenses
Operating expenses were $63.8 million in 1996 compared to $46.8 million in
1995, an increase of $17.0 million or 36.3%. Expenses associated with new
acquisitions represented $12.8 million of the increase, expenses attributable to
the acquisition in 1995 of a rail line in the Oregon region (which generated
operating expense of $2.6 million in 1996 compared to $711,000 in 1995)
represented $1.9 million of the increase, and expenses on existing operations
represented approximately $1.6 million of the increase.
The Company's operating ratio improved to 82.0% in 1996 from 87.7% in 1995.
The following table sets forth a comparison of the Company's operating
expenses in 1996 and 1995:
OPERATING EXPENSE COMPARISON
YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
% OF % OF
OPERATING OPERATING
$ REVENUE $ REVENUE
-- ------- -- -------
<S> <C> <C> <C> <C>
Labor and benefits $25,197 32.4% $18,683 35.0%
Equipment rents 8,511 10.9% 7,434 13.9%
Purchased services 3,398 4.4% 2,530 4.7%
Depreciation and amortization 6,052 7.8% 3,887 7.3%
Diesel fuel 4,433 5.7% 3,249 6.1%
Casualties and insurance 4,626 5.9% 3,673 6.9%
Materials 3,486 4.5% 2,531 4.7%
Other 6,738 8.7% 4,828 9.1%
Special charge 1,360 1.7% 0 0.0%
------- ---- ------- ----
Total $63,801 82.0% $46,815 87.7%
======= ==== ======= ====
</TABLE>
24
<PAGE>
Labor and benefits expense was $25.2 million in 1996 compared to $18.7 million
in 1995, an increase of $6.5 million or 34.8% primarily due to the commencement
of operations on new acquisitions. Labor costs decreased as a percentage of
revenues, however, to 32.4% in 1996 compared to 35.0% in 1995.
This decrease reflects the efficiency of the unit coal train operations on new
acquisitions.
Equipment rents were $8.5 million in 1996 compared to $7.4 million in 1995, an
increase of $1.1 million or 14.9%. However, equipment rents decreased to 10.9%
of operating revenue in 1996, from 13.9% in 1995. This is mainly because the
largest component of equipment rents, car hire expense, decreased from 7.9% of
operating revenue in 1995 to 5.8% of operating revenue in 1996 due to the
efficiency of new acquisitions. The reduction of equipment rents expense as a
percentage of operating revenues also reflects the reduction in the amount of
equipment under operating leases. In June 1995, the Company purchased railcars
and locomotives, which it had previously used under operating leases, which
reduced equipment rent under the terminated lease.
Depreciation expense was $6.1 million in 1996 compared to $3.9 million in
1995, an increase of $2.2 million or 56.4%. The increase primarily reflects
depreciation and amortization related to new acquisitions.
Casualties and insurance expense, including claims brought under the Federal
Employers' Liability Act, was $4.6 million in 1996 compared to $3.7 million in
1995, an increase of $954,000 or 25.8%. The majority of the increase in 1996
related to insurance premiums which increased $600,000 due primarily to new
acquisitions, and derailment and property damages which increased $475,000. T
his increase was partially offset by a decrease in additions to reserves for
third party liability which decreased from $1.4 million in 1995 to $1.3 million
in 1996, a decrease of $123,000.
Special charge expense of $1.4 million in 1996 represents the impairment of
assets of $1.1 million and employee severance and pension termination expense of
$220,000 related to the Company's realignment of operations and decision to
close certain supporting facilities of one of its subsidiaries resulting from
the closure of the Akzo mine (see Note 5. to Consolidated Financial Statements
and "Akzo Mine" above.
Interest Expense and Income Taxes
Interest expense was $4.7 million in 1996 compared to $3.4 million in 1995, an
increase of $1.3 million or 38.2%. The increase reflects the increased debt
related to the financing of new acquisitions, offset in part by the repayment of
$45.8 million of debt on June 28, 1996, from the proceeds of the initial public
offering. The Company's effective income tax rate was 40.5% in 1996 compared to
40.6% in 1995.
Net Income
The Company's net income in 1996 was $5.9 million compared to net income of
$1.7 million (or $2.2 million before an extraordinary expense of $494,000 in
connection with the early extinguishment of debt) in 1995. Excluding the effect
of this extraordinary expense, net income in 1996 increased $3.7 million or
168.2% compared to 1995.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company generated cash from operations of $1.8 million,
generated cash from asset sales of $581,000, received $2.9 million in state
grant funds for track rehabilitation, and had net new borrowings of $45.2
25
<PAGE>
million. During the year the Company invested $16.3 million, including capital
leases of $11.8 million, in equipment and rolling stock, and $9.4 million in
track improvements and buildings. These expenditures were apart from the
Company's investment in the Australia acquisition (see Note 2. to Consolidated
Financial Statements) and its investment in GRO which operates two railroads in
Canada (see Note 3. to Consolidated Financial Statements).
During 1996, the Company generated cash from operations of $30.4 million,
which includes the effect of $12.5 million generated by an excess of trade
payables over trade receivables as recorded by new acquisitions. In addition,
the Company received $17.8 million in proceeds from the sale of equipment, of
which $12.0 million was related to the sale leaseback of locomotives and $2.4
million was from the sale of assets acquired in the Pittsburg & Shawmut
acquisition. The Company invested $8.2 million in track and other fixed assets
apart from its investment in the Illinois & Midland, Pittsburg & Shawmut and
Rail Link acquisitions (see Note 2. to Consolidated Financial Statements).
During 1995, the Company generated cash from operations of $2.6 million,
generated cash from asset sales of $318,000, received $3.5 million in state
grant funds for track rehabilitation, and had net new borrowings of $6.7
million. During the year the Company invested $8.6 million in equipment and
rolling sto ck and $8.0 million in track improvements and buildings.
In October, 1997, the Company amended and restated its credit facilities
agreement to provide for a $65.0 million revolving credit facility. The
facility has a maturity date of October 31, 2002. The credit facilities accrue
interest at prime or the Eurodollar rate, at the option of the Company, plus the
applicable margin, which varies from 0.75% to 1.5% depending upon the Company's
funded debt to EBITDA ratio, as defined in the agreement. Interest is payable
in arrears based on certain elections of the Company, not to exceed three months
outstanding. The Company pays a commitment fee which varies between 0.25% and
0.375% per annum on all unused portions of the revolving credit facility
depending on the Company's funded debt to EBITDA ratio. The credit facilities
agreement requires mandatory prepayments from the issuance of new equity or debt
and annual sale of assets in excess of $6.5 million. These credit facilities
are guaranteed by all domestic subsidiaries of the Company and contain a
negative pledge of assets. The credit facilities agreement requires the
maintenance of certain covenants, including, but not limited to, funded debt to
EBITDA, cash flow coverage and EBITDA less defined capital expenditures to
interest expense, all as defined in the agreement. The Company and its
subsidiaries were in compliance with the provisions of these covenants as of
December 31, 1997.
At December 31, 1997 the Company had long-term debt (including current
portion) totaling $74.1 million, which comprised 52.0% of its total
capitalization. This compares to long-term debt, including current portion, of
$18.7 million at December 31, 1996, comprising 23.3% of total capitalization.
The Company's railroads have entered into a number of rehabilitation grants
with state and federal agencies. The grant funds are used as a supplement to
the Company's normal capital programs. In return for the grants, the railroads
pledge to maintain various levels of service and maintenance on the rail lines
that have been rehabilitated. The Company believes that the levels of service
and maintenance required under the grants are not materially different from
those that would be required without the grant obligation. While the Company
has benefited in recent years from these grant funds, there can be no assurance
that the funds will continue to be available.
26
<PAGE>
The Company has budgeted approximately $12.0 million in capital expenditures
in 1998, primarily for track rehabilitation, of which $1.5 million is expected
to be used to fulfill an obligation to replace rail under the terms of a lease
of one of the Company's railroads, and $2.5 million is expected to be used in
Australia.
In connection with the Company's acquisition of assets in Australia (see Note
2. to Consolidated Financial Statements), the Company has committed to the
Commonwealth of Australia to spend approximately $34.1 million (AU $52.3
million) to rehabilitate track structures and equipment by December 31, 2002.
The Commonwealth Government may require the payment of any shortfall between the
actual expenditure incurred from the date of acquisition to December 31, 2002,
and the contracted commitment of approximately $34.1 million (AU $52.3 million).
This commitment may be renegotiated if there is a significant change in
operating conditions outside the control of the Company.
The Company has historically relied primarily on cash generated from
operations to fund working capital and capital expenditures relating to ongoing
operations, while relying on borrowed funds to finance acquisitions and
equipment needs (primarily rolling stock) related to acquisitions. The Company
believes that its cash flow from operations together with amounts available
under the credit facilities will enable the Company to meet its liquidity and
capital expenditure requirements relating to ongoing operations for at least the
duration of the credit facilities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Non-applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial data required by this
item are listed at Part IV, Item 14 and are filed herewith immediately following
the signature page hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
The remainder of this page is intentionally left blank.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on May 12, 1998 under
"Election of Directors" and "Executive Officers", which proxy statement will be
filed within 120 days after the end of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on May 12, 1998 under
"Executive Compensation", which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on May 12, 1998 under
"Security Ownership of Certain Beneficial Owners and Management", which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on May 12, 1998 under
"Related Transactions", which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS PART OF THIS FORM 10-K.
Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
28
<PAGE>
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated November 7, 1997 was filed by the Registrant
reporting on Item 2. Acquisition or Disposition of Assets. No financial
statements were filed with such Form 8-K.
(C) EXHIBITS - SEE INDEX TO EXHIBITS.
The remainder of this page is intentionally left blank.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GENESEE & WYOMING INC.
By: /s/ Mortimer B. Fuller, III
---------------------------
Mortimer B. Fuller, III
Chairman of the Board and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
and on the date indicated below.
Date Title Signature
- ---- ----- ---------
March 27, 1998 CEO and /s/ Mortimer B.
Director Fuller, III
-------------------
Mortimer B. Fuller, III
March 27, 1998 Senior Vice President /s/ Alan R. Harris
and Chief Accounting ------------------
Officer Alan R. Harris
March 27, 1998 Senior Vice /s/ Mark W. Hastings
President, --------------------
Chief Financial Mark W. Hastings
Officer
and Treasurer
March 27, 1998 Director /s/ James M. Fuller
--------------------
James M. Fuller
March 27, 1998 Director /s/ Louis S. Fuller
--------------------
Louis S. Fuller
March 27, 1998 Director /s/ Robert M. Melzer
--------------------
Robert M. Melzer
March 27, 1998 Director /s/ John M. Randolph
--------------------
John M. Randolph
March 27, 1998 Director /s/ Philip J. Ringo
--------------------
Philip J. Ringo
30
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and the Shareholders of Genesee & Wyoming Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Genesee & Wyoming Inc. and issued our
report thereon dated February 12, 1998. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule of Valuation and Qualifying Accounts is presented for purposes of
complying with the Securities and Exchange Commissions rules and are not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 12, 1998
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Balance at
Description (in thousands) December 31, 1996 December 31, 1997
- -------------------------- ----------------- -----------------
Accounts Receivable - Allowance for $76 $167
Doubtful Receivables
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
Not applicable.
(3) (i) Articles of Incorporation
The Form of Restated Certificate of Incorporation referenced under
(4)(a) hereof is incorporated herein by reference.
(ii) By-laws
The By-laws referenced under (4)(b) hereof are incorporated herein by
reference.
(4) Instruments defining the rights of security holders, including
indentures
(a) Form of Restated Certificate of Incorporation (Exhibit 3.2)/2/
(b) By-laws (Exhibit 3.3)/1/
(c) Specimen stock certificate representing shares of Class A Common
Stock (Exhibit 4.1)/3/
(d) Form of Class B Stockholders' Agreement dated as of May 20, 1996,
among the Registrant, its executive officers and its Class B
stockholders (Exhibit 4.2)/2/
(e) Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh
Railroad, Inc. in favor of CSX Transportation, Inc. (Exhibit 4.6)/1/
31
<PAGE>
*( 4.1) Second Amended and Restated Revolving Credit Agreement dated as of
October 31, 1997 among the Registrant, its subsidiaries, BankBoston,
N.A. and the Banks named therein. Upon written request, the Registrant
will provide to security holders copies of any of the referenced omitted
Exhibits and Schedules.
( 9) Voting Agreement and Stock Purchase Option dated March 21, 1980 among
Mortimer B. Fuller, III, Mortimer B. Fuller, Jr. and Frances A. Fuller,
and amendments thereto dated May 7, 1988 and March 29, 1996 (Exhibit
9.1)/1/
(10) MATERIAL CONTRACTS
The Exhibits referenced under (4)(d) and (4)(f) through (4)(l) hereof
are incorporated herein by reference.
(a) Form of Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit
10.1)/2/
(b) Form of Genesee & Wyoming Inc. Stock Option Plan for Outside
Directors (Exhibit 10.2)/2/
(c) Form of Severance Agreement between the Registrant and each of its
executive officers (Exhibit 10.3)/1/
(d) Form of Genesee & Wyoming Inc. Employee Stock Purchase Plan
(Exhibit 10.4)/2/
(e) Asset Purchase Agreement dated February 8, 1996 between Illinois &
Midland Railroad, Inc. and Stanford PRC Acquisition Corp. (Exhibit
10.61)/1/
(f) Guaranty dated as of February 8, 1996 of the Registrant in favor of
Stanford PRC Acquisition Corp. (Exhibit 10.62)/1/
(g) Warrant Purchase Agreement dated as of February 8, 1996 between the
Registrant and First National Bank of Boston. (Exhibit 10.64)/1/
(h) Agreement dated February 6, 1996 between Illinois & Midland
Railroad, Inc. and the United Transportation Union. (Exhibit
10.65)/1/
(i) Asset Purchase Agreement dated April 19, 1996 among Pittsburg &
Shawmut Railroad, Inc., the Registrant, The Pittsburg & Shawmut
Railroad Company, Red Bank Railroad Company, Mountain Laurel
32
<PAGE>
Railroad Company and Arthur T. Walker Estate Corporation, and
Amendment No. 1 to Asset Purchase Agreement dated April 19, 1996.
(Exhibit 10.70)/4/
(j) Amendment No. 1 to Warrant Purchase Agreement dated as of May 31,
1996 between the Registrant and FSC Corp. (Exhibit 10.71)/2/
(k) Stock Purchase Agreement dated as of November 8, 1996 between
Brenco, Incorporated, Rail Link, Inc. and the Registrant (Exhibit
10.1)/5/
(l) Amendment No. 1 to the Genesee & Wyoming Inc. Stock Option Plan
(Exhibit 10.1)/6/
(m) Share Sale Agreement dated 28 August 1997 between the Commonwealth
of Australia, Genesee & Wyoming Australia Pty. Limited (now named
Australia Southern Railroad Pty. Limited) and the Registrant, and
Amendment Agreement dated 7 November 1997 with respect thereto.
(Exhibit 2.1)/7/
*(10.1) Amendment No. 1 to Genesee & Wyoming Inc. Stock Option Plan for Outside
Directors.
*(10.2) Memorandum of Lease between Minister for Transport and Urban Planning a
Body Corporate Under the Administrative Arrangements Act 1994, the
Lessor, and Australia Southern Railroad Pty Ltd A.C.N 079 444 296, the
Lessee, dated 7 November 1997. Upon written request, the Registrant will
provide to security holders copies of any of the referenced omitted
Schedules.
*(11.1) Statement re computation of per share earnings
(12) Statement re computation of ratios
Not applicable.
(13) Annual report to security holders, Form 10-Q or quarterly report to
security holders
Not applicable.
(16) Letter re change in certifying accountant
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
*(21.1) Subsidiaries of the Registrant
(22) Published report regarding matters submitted to vote of security holders
Not applicable.
*(23.1) Consent of Arthur Andersen LLP
(24) Power of attorney
33
<PAGE>
Not applicable.
*(27.1) Financial Data Schedule for Year Ended December 31, 1997
*(27.2) Restated FDS for Quarter ended September 30, 1997
*(27.3) Restated FDS for Quarter Ended June 30, 1997
*(27.4) Restated FDS for Quarter Ended March 31, 1997
*(27.5) Restated FDS for Quarter Ended December 31, 1996
*(27.6) Restated FDS for Quarter Ended September 30, 1996
*(27.7) Restated FDS for Quarter ended June 30, 1996
(99) Additional Exhibits
- ----------------------------
*Exhibit filed with this Report.
/1/Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Registration Statement on Form S-1 (Registration
No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit
number in such Registration Statement.
/2/Exhibit previously filed as part of, and incorporated herein by
reference to, Amendment No. 1 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis
refers to the exhibit number in such Amendment.
/3/Exhibit previously filed as part of, and incorporated herein by
reference to, Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis
refers to the exhibit number in such Amendment.
/4/Exhibit previously filed as part of, and incorporated herein by
reference to, Amendment No. 5 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis
refers to the exhibit number in such Amendment.
/5/Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1997. The exhibit number contained in parenthesis refers to the
exhibit number in such Report.
/6/Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 10-Q for the quarter ended June
30, 1997. The exhibit number contained in parenthesis refers to the exhibit
number in such Report.
/7/Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 8-K dated November 7, 1997. The
exhibit number contained in parenthesis refers to the exhibit number in such
Report.
The remainder of this page is intentionally left blank.
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
Genesee & Wyoming Inc. and Subsidiaries:
<S> <C>
Report of Independent Public Accountants.................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996............................... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995..................................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995..................................................... F-6
Notes to Consolidated Financial Statements.................................................. F-7
</TABLE>
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and
the Shareholders of
Genesee & Wyoming Inc.:
We have audited the accompanying consolidated balance sheets of GENESEE &
WYOMING INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Genesee & Wyoming Inc. and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 12, 1998
2
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
------------ -----------
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
CURRENTS ASSETS:
Cash and cash equivalents $11,434 $14,121
Accounts receivable, net 29,895 19,133
Note receivable - related party 4,499 ---
Materials and supplies 5,039 4,173
Prepaid expenses and other 3,145 1,771
Deferred income tax assets, net 2,523 1,632
------------------------------------
Total current assets 56,535 40,830
------------------------------------
PROPERTY AND EQUIPMENT, net 124,985 78,822
------------------------------------
SERVICE ASSURANCE AGREEMENT, net 13,563 14,312
------------------------------------
INVESTMENT IN UNCONSOLIDATED AFFILIATE 5,082 ---
------------------------------------
OTHER ASSETS, net 10,367 11,375
------------------------------------
Total assets $210,532 $145,339
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $1,157 $271
Accounts payable 30,025 33,583
Accrued expenses 6,796 6,122
-------------------------------------
Total current liabilities 37,978 39,976
-------------------------------------
LONG-TERM DEBT 72,987 18,460
-------------------------------------
OTHER LIABILITIES 3,237 2,699
-------------------------------------
DEFERRED INCOME TAX LIABILITIES, net 8,470 4,720
-------------------------------------
DEFERRED ITEMS--grants from governmental agencies 15,083 12,899
-------------------------------------
DEFERRED GAIN--sale leaseback 4,434 4,902
-------------------------------------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 14)
STOCKHOLDERS' EQUITY:
Class A common stock, $0.01 par value, one vote per share;
12,000,000 shares authorized; 4,404,262 and 4,399,463 issued and
outstanding on December 31, 1997 and 1996, respectively 44 44
Class B common stock, $0.01 par value, 10 votes per share;
1,500,000 shares authorized; 846,556 issued and outstanding 8 8
Additional paid-in capital 46,205 46,102
Warrants outstanding 471 471
Retained earnings 23,056 15,058
Foreign currency translation adjustment (1,441) ---
-------------------------------------
Total stockholders' equity 68,343 61,683
-------------------------------------
Total liabilities and stockholders' equity $210,532 $145,339
=====================================
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
F-3
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING REVENUES $103,643 $77,795 $53,387
---------------------------------------
OPERATING EXPENSES:
Transportation 31,690 18,952 14,262
Maintenance of ways and structures 10,483 9,431 6,127
Maintenance of equipment 17,537 14,218 12,230
General and administrative 20,491 13,788 10,309
Depreciation and amortization 6,999 6,052 3,887
Special charge ---- 1,360 ----
---------------------------------------
Total operating expenses 87,200 63,801 46,815
---------------------------------------
Income from operations 16,443 13,994 6,572
INTEREST EXPENSE (3,349) (4,720) (3,405)
OTHER INCOME, net 345 651 456
---------------------------------------
Income before provision for income taxes and
extraordinary item 13,439 9,925 3,623
PROVISION FOR INCOME TAXES (5,441) (4,020) (1,472)
---------------------------------------
Income before extraordinary item 7,998 5,905 2,151
EXTRAORDINARY ITEM FROM EARLY EXTINGUISHMENT
OF DEBT, net of related income tax benefit of $357 ---- ---- (494)
---------------------------------------
NET INCOME $7,998 $5,905 $1,657
=======================================
Basic earnings per common share :
Income before extraordinary item $1.52 $1.54 $0.92
Extraordinary item ---- ---- (0.21)
---------------------------------------
Net Income $1.52 $1.54 $0.71
=======================================
Weighted average number of shares of common stock - basic 5,250 3,829 2,348
=======================================
Diluted earnings per common share :
Income before extraordinary item $1.47 $1.49 $0.92
Extraordinary item ---- ---- ($0.21)
---------------------------------------
Net Income $1.47 $1.49 $0.71
=======================================
Weighted average number of shares of common stock - diluted 5,447 3,966 2,348
=======================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
-------------------------------------------------------------
Shares $0.01 Shares $0.01 Additional
Issued and Par Issued and Par Paid-in
Outstanding Value Outstanding Value Capital
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 1,502 $15 847 $8 $1,340
Net income --- --- --- --- ---
Cash dividends -- $0.08 per share --- --- --- --- ---
------------------------------------------------------------
BALANCE, December 31, 1995 1,502 15 847 8 1,340
Issuance of stock warrants --- --- --- --- ---
Proceeds from issuance of stock--initial public offering 2,898 29 --- --- 44,751
Proceeds from issuance of stock--employee purchase --- --- --- --- 11
Net income --- --- --- --- ---
Cash dividends -- $0.01 per share --- --- --- --- ---
------------------------------------------------------------
BALANCE, December 31, 1996 4,400 44 847 8 46,102
------------------------------------------------------------
Proceeds from issuance of stock--employee purchase 4 --- --- --- 103
Translation adjustments --- --- --- --- ---
Net income --- --- --- --- ---
------------------------------------------------------------
BALANCE, December 31, 1997 4,404 $44 847 $8 $46,205
============================================================
</TABLE>
<TABLE>
<S>
Foreign Stockholders'
Warrants Retained Currency Equity
Outstanding Earnings Adjustment Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 --- $7,719 --- $9,082
Net income --- 1,657 --- 1,657
Cash dividends -- $0.08 per share --- (191) --- (191)
--------------------------------------------------------
BALANCE, December 31, 1995 --- 9,185 --- 10,548
Issuance of stock warrants $471 --- --- 471
Proceeds from issuance of stock--initial public offering --- --- --- 44,780
Proceeds from issuance of stock--employee purchase --- --- --- 11
Net income --- 5,905 --- 5,905
Cash dividends -- $0.01 per share --- (32) --- (32)
--------------------------------------------------------
BALANCE, December 31, 1996 471 15,058 --- 61,683
--------------------------------------------------------
Proceeds from issuance of stock--employee purchase --- --- --- 103
Translation adjustments --- --- ($1,441) (1,441)
Net income --- 7,998 --- 7,998
--------------------------------------------------------
BALANCE, December 31, 1997 $ 411 $23,056 ($1,441) $68,343
=======================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $7,998 $5,905 $1,657
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 6,999 6,052 3,887
Deferred income taxes 2,863 1,332 811
Gain on disposition of property (13) (633) (195)
Special charge ---- 1,360 ----
Changes in assets and liabilities, net of balances
assumed through acquisitions-
Receivables (14,347) (7,781) 1,257
Materials and supplies 477 (1,861) 38
Prepaid expenses and other (1,362) (239) (450)
Accounts payables and accrued expenses (2,015) 25,217 (4,751)
Other assets and liabilities, net 1,210 1,060 310
--------------------------------------
Net cash provided by operating activities 1,810 30,412 2,564
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,891) (8,174) (16,632)
Purchase of assets of Chicago & Illinois Midland Railway Company ---- (26,330) ----
Purchase of assets of Pittsburg & Shawmut Railroad Company,
Mountain Laurel Railroad Company and Red Bank Railroad Company ---- (11,966) ----
Purchase of common stock of Rail Link, Inc. ---- (12,122) ----
Purchase of assets of Australian National Railway (33,079) ---- ----
Investment in affiliate (4,913) ---- ----
Proceeds from disposition of property 581 17,790 318
--------------------------------------
Net cash used in investing activities (51,302) (40,802) (16,314)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings, including capital leases (24,982) (73,400) (16,999)
Proceeds from issuance of long-term debt 70,885 51,437 24,300
Debt issuance costs (739) (1,642) (641)
Net proceeds on grants 2,903 771 3,512
Dividends paid ---- (32) (191)
Proceeds from issuance of stock--employee purchase 103 11 ----
Issuance of stock warrants ---- 471 ----
Proceeds from issuance of stock--initial public offering ---- 44,780 ----
--------------------------------------
Net cash provided by financing activities 48,170 22,396 9,981
--------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (1,365) ---- ----
--------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,687) 12,006 (3,769)
CASH AND CASH EQUIVALENTS, beginning of period 14,121 2,115 5,884
--------------------------------------
CASH AND CASH EQUIVALENTS, end of period $11,434 $14,121 $2,115
======================================
CASH PAID DURING PERIOD FOR:
Interest $2,474 $4,347 $3,204
Incomes taxes 5,056 2,138 1,022
======================================
SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:
Assumption of liabilities in connection with purchase of
assets of Chicago & Illinois Midland Railway Company ---- $1,394 ----
Assumption of deferred credits from governmental agencies in connection
with purchase of assets of Pittsburg & Shawmut Railroad Company,
Mountain Laurel Railroad Company and Red Bank Railroad Company ---- 3,194 ----
Capital lease obligation $11,761 ---- ----
======================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. THE COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
-----------------------------------------------------------
Genesee & Wyoming Inc. and Subsidiaries (the "Company") operates 16 short line
and regional railroads in New York, Pennsylvania, Louisiana, Oregon, Texas,
Illinois, Florida, North Carolina, Virginia and, beginning in 1997, Australia
(see Note 2.), through its various subsidiaries. The Company, through its
leasing subsidiary, also buys, sells, leases and manages railroad transportation
equipment. The Company, through its industrial switching subsidiary, also
provides freight car switching and related services to industries in the United
States with extensive railroad facilities within their complexes. The Company
has an unconsolidated 47.5 percent equity interest in a Canadian company which
owns and operates two railroads in Canada.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and accounts have
been eliminated in consolidation.
Revenue Recognition
- -------------------
Revenues are estimated and recognized as shipments initially move onto the
Company's tracks, which, due to the relatively short length of haul, is not
materially different from the recognition of revenues as shipments progress.
Cash Equivalents
- ----------------
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents for purposes of
classification in the consolidated balance sheets and consolidated statements of
cash flows. Cash equivalents are stated at cost, which approximates fair market
value.
Materials and Supplies
- ----------------------
Materials and supplies consist of items for improvement and maintenance of road
property and equipment, and are stated at the lower of average cost or market.
Property and Equipment
- ----------------------
Property and equipment are carried at historical cost. Acquired railroad
property is recorded at the purchased cost. Major renewals or betterments are
capitaliz ed while routine maintenance and repairs, which do not improve or
extend asset lives, are charged to expense when incurred. Gains or losses on
sales or other dispositions are credited or charged to other income. Gains of
approximately $78,000 and $572,000 realized by the leasing subsidiary on the
sale or disposition of transportation equipment during 1997 and 1996,
respectively, are classified in operating revenues. Depreciation is provided on
the straight-line method over the useful lives of the property which are as
follows:
Road Properties...............................20-50 years
Equipment......................................3-20 years
7
<PAGE>
The Company continually evaluates whether events and circumstances have occurred
that indicate the assets may not be recoverable. When factors indicate that the
assets should be evaluated for possible impairment, the Company uses an estimate
of the related undiscounted future cash flows over the remaining lives of the
assets in measuring whether or not an impairment has occurred.
Service Assurance Agreement
- ---------------------------
The service assurance agreement represents a commitment from the most
significant customer of the Company, to one of the subsidiary railroads (see
Note 2.), which grants the Company the exclusive right to serve indefinitely
three of the customer's facilities. The service assurance agreement is
amortized on a straight-line basis over the same period as the related track
structure, which is 20 years. The service assurance agreement is stated at
$13.6 million, net of accumulated amortization of $1.4 million and $14.3
million, net of accumulated amortization of $669,000 at December 31, 1997 and
1996, respectively.
Earnings per Share
- ------------------
Earnings per share are calculated under the guidelines of FASB Statement No. 128
wherein earnings per share are presented for basic and diluted shares on net
income. Basic earnings per share are calculated on income available to common
stockholders divided by the weighted-average number of common shares during the
period. Diluted earnings per share are calculated using earnings available to
each share of common stock outstanding during the period and to each share that
would have been outstanding assuming the issuance of common shares for all
potentially dilutive common shares outstanding during the reporting period.
Unexercised stock options and warrants, calculated under the treasury stock
method, are the only reconciling items between the Company's basic and diluted
earnings per share. The number of options and warrants, included in the
denominator, used to calculate diluted earnings per share are 409,822, 424,347
and 0 for 1997, 1996 and 1995, respectively. Options to purchase 39,000 shares
of stock were outstanding during 1997 but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
Significant Customer Relationship
- ---------------------------------
A large portion of the Company's operating revenues is attributable to customers
operating in the electric utility, forest products, petroleum and chemical
industries. As the Company acquires new railroad operations, the base of
customers and industries served continues to grow and diversify. The largest
ten customers, which is a group that changes annually, accounted for
approximately 37%, 49% and 50% of the Company's revenues in 1997, 1996 and 1995,
respectively. One customer in the electric utility industry accounted for
approximately 15% and 18% of the Company's revenues in 1997 and 1996,
respectively (see Note 2.). The Company regularly grants trade credit to all of
its customers. In addition, the Company grants trade credit to other railroads
through the routine interchange of traffic. Although the Company's accounts
receivable include a diverse number of customers and railroads, the collection
of these receivables is substantially dependent upon the economies of the
regions in which the Company operates, the electric utility, forest products,
petroleum and chemical industries, and the railroad sector of the economy in
general.
Disclosures About Fair Value of Financial Instruments__
- -----------------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument held by the Company:
Current assets and current liabilities: The carrying value approximates
fair value due to the short maturity of these items.
8
<PAGE>
Long-term debt: The fair value of the Company's long-term debt is based on
secondary market indicators. Since the Company's debt is not quoted,
estimates are based on each obligation's characteristics, including
remaining maturities, interest rate, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates fair
value.
Management Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Reclassifications
- -----------------
Certain 1996 balances have been reclassified to conform with the 1997
presentation.
Foreign Currency Translation
- ----------------------------
The financial statements of the Company's foreign subsidiary were prepared in
their respective local currency and translated into U.S. dollars based on the
current exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statement of income. Translation
adjustments are reflected as foreign currency translation adjustments in
Shareholders' Equity and accordingly have no effect on net income. Translation
adjustments for transactions denominated in foreign currency are included in
other expense and were $114,000 in 1997.
2. EXPANSION OF OPERATIONS:
------------------------
Illinois & Midland Railroad, Inc.
- ---------------------------------
On February 8, 1996, a newly-formed subsidiary, Illinois & Midland Railroad,
Inc. ("Illinois & Midland"), purchased certain assets, primarily road and track
structure, of Chicago & Illinois Midland Railway Company for approximately $27.7
million, including related costs and the assumption of certain liabilities. The
purch ase price was allocated to purchased inventory ($750,000), assumed note
receivable ($1.2 million), property ($10.8 million), and the service assurance
agreement ($14.9 million). The purchase also included the assumption of $1.4
million of liabilities. This subsidiary operates approximately 126 miles of
track in the State of Illinois. A significant portion of this subsidiary's
operating revenue (74% in 1997, 76% in 1996 and 83% in 1995) is attributable to
coal shipments for one customer which is an electric utility (see Note 1.). The
acquisition was accounted for as a purchase.
Pittsburg & Shawmut Railroad, Inc.
- ----------------------------------
On April 29, 1996, a newly formed subsidiary, Pittsburg & Shawmut Railroad, Inc.
("Pittsburg & Shawmut"), purchased certain assets, primarily road and track
structure, of Pittsburg & Shawmut Railroad Company, Mountain Laurel Railroad
Company, and Red Bank Railroad Company for approximately $15.2 million,
including related costs. The purchase price was allocated to purchased
inventory ($50,000), property ($14.8 million), and other assets ($264,000). The
purchase also included the assumption of $3.2 million of deferred grants from
the State of Pennsylvania. In addition, the purchase and sale agreement
provides for additional contingency payments of up to $2.5 million. A portion
of these payments are required (up to a maximum of $500,000 plus interest) if
certain coal shipments during any calendar year from 1997-1999, as defined,
exceed 290,000 tons. The remaining contingency payments (up to a maximum of
$2.0 million) are
9
<PAGE>
calculated as 25% of the gross revenues attributable to certain coal shipments
that exceed 564,793 tons during any calendar year from 2000-2009, as defined.
Upon resolution of the amount of the contingency payments, there will be an
additional element of cost related to the transaction, which will be recorded as
goodwill and amortized over the same period as the related track structure,
which is 20 years. On December 31, 1997, the Company met certain contingency
payment criteria and recorded $192,000 of goodwill. On June 28, 1996, a portion
of the railcars acquired in the purchase were sold for $2.4 million, the
purchase price allocation was adjusted, and no gain or loss was recognized. The
acquisition was accounted for as a purchase.
Rail Link, Inc.
- ---------------
On November 8, 1996, the Company completed its acquisition of all of the common
stock of Rail Link, Inc. ("Rail Link") for approximately $12.1 million in cash
of which $3.0 million are contingent payments based on performance. In 1996,
the Company recorded the entire contingent payment as part of the purchase
price. In 1997, the Company reversed $1.5 million of purchase price based on
the probability of payment. At December 31, 1997, $1.5 million in future
amounts payable remain contingent. The purchase price was allocated to
purchased net working capital ($1.2 million), property ($5.0 million), goodwill
($4.1 million) and other assets ($275,000). The goodwill is being amortized on
a straight-line basis over 20 years. The purchase also included the assumption
of $474,000 of liabilities. Rail Link provides freight car switching and
related services to United States industries with extensive railroad facilities
within their complexes. Rail Link manages 23 switching operations, a railcar
cleaning operation, two track maintenance operations and a locomotive leasing
operation in 11 states. Rail Link operates four short line railroads located in
Florida, North Carolina, Texas and Virginia. The acquisition was accounted for
as a purchase.
Pro Forma for Acquisitions - Results for the operations of Illinois & Midland
Railroad, Inc., Pittsburg & Shawmut Railroad, Inc. and Rail Link, Inc. are
included within the consolidated financial statements commencing February 9,
1996, April 30, 1996, and November 9, 1996, respectively. Unaudited pro forma
results assuming these acquisitions had been made as of January 1, 1995, are as
follows (in thousands, except per share amounts):
Year Ended
------------------
12/31/96 12/31/95
-------- --------
(Unaudited)
Revenues....................................................$90,842 $82,397
Net income.................................................. 5,572 3,976
Net income per common share - basic......................... $1.46 $1.69
Net income per common share - diluted....................... $1.40 $1.69
Such pro forma information is not necessarily indicative of the results of
future operations. Income per share information has been adjusted for the stock
split (see Note 15.) as though it took place on January 1, 1995.
Genesee & Wyoming Australia Pty. Ltd.
- -------------------------------------
On August 28, 1997, the Company announced that its wholly owned subsidiary,
Genesee & Wyoming Australia Pty. Ltd. ("GWIA"), had been awarded the contract to
purchase certain selected assets of the railroad freight operation of SA Rail, a
division of Australian National Railway which is controlled by the Commonwealth
Government of Australia. SA Rail provides intrastate freight services in South
10
<PAGE>
Australia, interstate haulage of contract freight, rolling stock rental and
maintenance, and interstate track maintenance. GWIA bid as part of a consortium
including EDI Clyde Engineering and Transfield Pty. Ltd. EDI Clyde is a major
Australian provider of railway rolling stock and holds the Australian license
for GM/EMD locomotives. Transfield is a major Australian engineering,
construction and infrastructure maintenance provider. On November 8, 1997 GWIA
closed on the purchase of the assets and commenced operation of railroad freight
service under the name of Australia Southern Railroad Pty. Ltd. The assets were
acquired for approximately $33.1 million, including related costs. The assets
consist primarily of road and track structure, railroad rolling stock and other
equipment.
3. JOINT VENTURE:
--------------
The Company has formed a joint venture, Genesee Rail-One Inc. ("GRO") to acquire
railroads in Canada. GRO is a joint venture with Rail-One Inc., a subsidiary of
The Cygnus Group which is an integrated transportation facilities, services and
infrastructure provider in Canada. The Company's initial capital investment in
GRO was approximately $4,913,000.
On July 29, 1997, GRO commenced operations of the Huron Central Railway Inc.
("HCRY"), a 180-mile railroad located in Central Ontario. HCRY leases its rail
line from the Canadian Pacific Railway for a 20 year term and is responsible for
operation and maintenance of the leased line.
GRO commenced operations on November 11, 1997 of the Quebec Gatineau Railway
Inc. ("QGRY"), a 354-mile railroad linking Quebec City, Montreal and Hull in
Southeas tern Quebec. QGRY purchased and leased the assets for this railroad
from St. Lawrence & Hudson Railway Company Limited which is a subsidiary of
Canadian Pacific Railway Company.
Based on GWI's ownership portion of 47.5%, the Company is reporting the results
of operations of GRO under the equity method of accounting for investments. The
results of operations of GRO are translated into U.S. dollars at a weighted
average exchange rate for each period and are included in other income, net.
4. RELATED PARTY TRANSACTIONS
--------------------------
The Company has loaned Rail-One, its joint venture partner in GRO, $4,613,000
through a promissory note denominated in Canadian currency. The note bears
interest at 7.5 percent per annum, earns a Commitment Fee equal to 4 percent of
the principal amount of the note and is secured by Rail-One's 47.5 percent
ownership in GRO. The principal of the note, all accrued interest on the
principal amount and the Commitment Fee are due and payable on November 10, 1998
(the "Maturity Date"). If Rail-One pays all accrued interest and the Commitment
Fee on the Maturity Date, Rail-One shall have the option to extend the loan for
an additional three months at 12.5 percent per annum. Interest income and
Commitment Fee income reported in other income, net in the Company's financial
results for 1997 were $49,000 and $31,000, respectively. On December 31, 1997,
the Company's promissory note with Rail-One was valued at $4,499,000 after
foreign currency exchange adjustments, resulting in a translation loss of
$114,000 that is included in other income, net.
Two of the Company's subsidiaries have agreed through a Memorandum of Lease
Agreement to enter into several one year operating leases with subsidiaries of
GRO to provide rail cars and locomotives for service in Canada. On November 25,
1997, one of the Company's subsidiaries entered into a lease to provide 911
boxcars at a monthly rate of $185 per car. Equipment rental income of $197,000
resulting from this lease was included in 1997 operating revenue. The remaining
11
<PAGE>
operating leases are dependent on asset availability and cost before lease rates
can be determined and the leases can be finalized.
The Company has entered into an agreement with GRO to provide certain
management, administrative and accounting services to GRO and its subsidiaries.
Management fees of $65,000 earned in 1997 were reported as an offset to general
and administrative expense in the Company's financial statements.
5. SPECIAL CHARGE:
---------------
Since 1899, one of the Company's subsidiaries previously served a salt mine in
Retsof, New York. This mine closed in 1995 and in 1996, the mining company
announced it would not replace the mine or maintain a distribution center. The
subsidiary has experienced a significant decline in traffic and in the fourth
quarter of 1996 the Company realigned its operations and decided to close
certain supporting facilities of that subsidiary. Thus, the Company has
recorded a special charge representing the impairment of assets of $1,140,000
and employee severance and pension termination expense of $220,000. This
special charge, which was recorded in the fourth quarter of 1996, is in the
amount of $1,360,000 before tax and $809,000 after tax, or $0.20 per share.
On February 11, 1997, an investment group announced a plan to acquire all rights
of the prior salt mining company and build a new mine in the Retsof area.
According to the investment group, development of this new mine is contingent
upon obtaining adequate financing and regulatory approvals and permits. Because
of the nature of the proposed mine and the Company's realignment of operations,
the supporting facilities which were the subject of this special charge will not
be needed in any future rail operations. As of February, 1998, the investment
group continues to pursue the regulatory approvals and permitting processes
necessary to development of the new mine.
6. PROPERTY AND EQUIPMENT:
-----------------------
Major classifications of property and equipment are as follows (amounts in
thousands)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Road properties $ 83,093 $62,670
Equipment and other 66,341 34,017
-------- --------
149,434 96,687
Less- Accumulated depreciation and amortization
24,449 17,865
-------- --------
$124,985 $78,822
======== ========
</TABLE>
12
<PAGE>
7. OTHER ASSETS:
-------------
Major classifications of other assets are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Goodwill $ 4,238 $ 5,629
Deferred financing costs 3,073 2,328
Assets held for sale or future use 2,023 2,023
Other 2,565 2,160
------- -------
11,899 12,140
Less- Accumulated amortization 1,532 765
------- -------
$10,367 $11,375
======= =======
</TABLE>
Goodwill is being amortized on a straight-line basis over 20 years (see Note
2.). Deferred financing costs are amortized over the periods covered by the
related revolving credit agreement and other applicable finance agreements using
the straight-line method, which is not materially different from the
amortization computed using the effective-interest method (see Note 9.). Assets
held for sale or future use relate to the shutdown of one of the Company's
subsidiaries (see Note 5.).
8. LEASES:
-------
Lessor
- ------
Several subsidiaries of the Company lease rolling stock to third parties and
affiliated companies under agreements that are accounted for as operating
leases. The property held for lease on December 31, 1997, totaled $14.8 million
less accumulated depreciation of $4.6 million. The following is a schedule by
years of minimum future rentals receivable on noncancelable operating leases
(amounts in thousands):
1998.............................................$5,001
1999............................................. 1,397
2000............................................. 1,397
2001............................................. 918
2002............................................. 918
Thereafter....................................... 2,804
------
$12,435
=======
Lessee
- ------
The Company has entered into several leases for rolling stock, locomotives and
other equipment. Operating lease expense for the years ended December 31, 1997,
1996 and 1995, was approximately $2,015,000, $1,256,000 and $2,173,000,
respectively.
In December, 1997, a subsidiary of the Company entered into an agreement with a
bank to lease 911 boxcars at an average monthly rate of $177 per car for a lease
term of one year. The lease includes an option to automatically renew for four
subsequent one year terms at a periodic rent equal to the rent applicable during
the initial term. The lease also includes an option to purchase all of the
cars,
13
<PAGE>
subject to certain conditions, at the end of five one-year periods. The
boxcars were simultaneously leased to an unconsolidated affiliate which is a
subsidiary of GRO at a rate of $185 per car per month.
On December 27, 1996, the Company completed the sale of 53 of its locomotives to
a leasing company for a net sale price of approximately $11,950,000. The
proceeds were applied to debt on the Company's credit facilities (see Note 9).
Simultaneously, a subsidiary of the Company entered into an agreement with the
leasing company to lease the locomotives back. The sale resulted in a deferred
gain of approximately $4,902,000 which is being amortized over the term of the
lease as a non-cash offset to rent expense.
The following is a summary of future minimum payments under noncancelable leases
(amounts in thousands):
1998.............................................$5,162
1999............................................. 2,166
2000............................................. 1,792
2001............................................. 1,739
2002............................................. 1,511
Thereafter....................................... 5,235
-----
Total minimum payments..........................$17,605
=======
In 1992, a subsidiary of the Company entered into a lease agreement with a Class
I carrier to operate 185 miles of track in Oregon. This subsidiary began
operations in 1993. The subsidiary has assumed all operating and financial
responsibilities including maintenance and regulatory compliance. Under the
lease, no payments to the lessor are required as long as the subsidiary
interchanges its freight traffic with only the lessor. Through December 31,
1997, no payments were required under this lease arrangement as all traffic has
been interchanged with the lessor. The lease is subject to an initial 20 year
term and shall be renewed for successive ten year renewal terms, unless either
party elects not to renew the lease. If the lessor terminates the lease for
any reason, the lessor must reimburse the subsidiary for its depreciated basis
in the property.
In August, 1995, another subsidiary of the Company signed an agreement with the
same Class I carrier to lease and operate 53 miles of track in Oregon. The
lease is subject to an initial 20 year term and shall be renewed for an
additional ten years, unless either party elects not to renew the lease. Under
the lease, no payments to the lessor are required as long as the subsidiary
maintains minimum levels of traffic and provided the subsidiary interchanges its
freight traffic with only the lessor and certain permitted carriers. The
maximum annual lease payment required if this subsidiary did not move any
traffic would be $1.3 million. In October, 1995, this subsidiary signed an
agreement with another Class I carrier to lease and operate an additional 53
miles of connecting track in Oregon. The lease is subject to an initial three
year term and shall be renewed for successive three year intervals, unless
either party elects not to renew the lease. Under the lease, no payments to the
lessor are required as long as the subsidiary interchanges its freight traffic
with only the lessor and certain permitted carriers. On November 19, 1997, this
lease was replaced by the purchase of certain assets, rights and obligations
including a rail service easement which is a permanent and exclusive easement
over the rail corridors previously under lease. Under all of these
arrangements, the Company has assumed all operating and financial
responsibilities including maintenance and regulatory compliance. Through
December 31, 1997, no payments were required under either lease arrangement.
14
<PAGE>
9. LONG-TERM DEBT:
---------------
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Credit facilities with variable interest depending upon certain
financial ratios of the Company, as defined (7.0% at December
31, 1997), with the balance due in 2002, net of unamortized
discount of $290,000 ($384,000 in 1996) $27,410 $ 7,972
Promissory note payable with interest at 8% and principal
payments due annually of $1,188,000 if certain conditions, as
specified in the agreement, are met, with the balance due in
1999 8,922 9,022
Capital lease obligations with variable interest at LIBOR plus
1.5% 11,761 -
Variable rate loan with variable interest on 50% of the loan and
interest at 6.24% on the remaining 50%, payable in semi-annual
installments commencing in June, 1999 through November, 2002 14,991 -
Subordinated debt facility with interest at 6.16%, no
amortization requirements, with the balance due in 1999. 7,170 -
Other debt with interest rates up to 8% and maturing at various
dates between 1998 and 2006 3,890 1,737
---------------------------------------------------------- -------- --------
74,144 18,731
Less- Current portion 1,157 271
---------------------------------------------------------- -------- --------
Long-term debt, less current portion $72,987 $18,460
============================================================ ======= =======
</TABLE>
Credit Facilities
- -----------------
In October, 1997, the Company amended and restated its credit facilities
agreement to provide for a $65 million revolving credit facility. The facility
has a maturity date of October 31, 2002. The credit facilities accrue interest
at prime or the Eurodollar rate, at the option of the Company, plus the
applicable margin, which varies from 0.75% to 1.5% depending upon the Company's
funded debt to EBITDA ratio, as defined in the agreement. Interest is payable
in arrears based on certain elections of the Company, not to exceed three months
outstanding. The Company pays a commitment fee which varies between 0.25% and
0.375% per annum on all unused portions of the revolving credit facility
depending on the Company's funded debt to EBITDA ratio. The credit facilities
agreement requires mandatory prepayments from the issuance of new equity or debt
and annual sale of assets in excess of $6.5 million. These credit facilities
are guaranteed by all domestic subsidiaries of the Company and contain a
negative pledge of assets. The credit facilities agreement requires the
maintenance of certain covenants, including, but not limited to, funded debt to
EBITDA, cash flow coverage and EBITDA less defined capital expenditures to
interest expense, all as defined in the agreement. The Company and its
subsidiaries were in compliance with the provisions of these covenants as of
December 31, 1997.
15
<PAGE>
Promissory Note
- ---------------
The promissory note payable with an outstanding balance of $8,922,000 at
December 31, 1997, provides for annual principal payments of $1,188,000 by a
subsidiary provided the subsidiary meets certain levels of revenue and cash
flow. In accordance with these provisions, the subsidiary was not required to
make any principal payments in 1997 or 1996. The subsidiary did, however, make
principal payments of $100,000 and $100,000 in 1997 and 1996, respectively, due
to additional requirements regarding the sale of assets, as defined in the
agreement. The subsidiary does not expect that it will be required to make a
principal payment in 1998. The annual debt maturity schedule has been adjusted
accordingly.
Capital Lease Obligation
- ------------------------
In March, 1997, a subsidiary of the Company entered into a master lease
agreement with a leasing company. The lease provides for the inclusion of up to
$13.0 million in railroad rolling stock. As of December 31, 1997, the Company's
subsidiary had $11.8 million of equipment under this lease. Lease payments
until September 30, 1998, are interest only at LIBOR plus 1.5%. After that
date, the equipment currently under lease will require monthly payments of
$116,461 until March, 2017. The Company's subsidiary has the right to purchase
the equipment at any time during the lease for fair market value.
Variable Rate Loan
- ------------------
In November, 1997, a subsidiary of the Company entered into a variable rate loan
which calls for semi-annual payments commencing on June 30, 1999, with the final
installment due in November, 2002. There is a fixed interest rate swap over 50%
of the loan balance, effectively fixing the interest rate at 6.24% for 50% of
the loan for the life of the loan. The loan is secured by a first ranking fixed
and floating charge over all the present and future assets of the Australia
Southern Railroad Pty. Ltd. and SA Rail Pty. Ltd. and control over all
indebtedness of the Australia Southern Railroad Pty. Ltd. to Genesee & Wyoming
Australia Pty. Ltd.
Subordinated Debt Facility
- --------------------------
In November, 1997, a subsidiary of the Company entered into a subordinated debt
facility repayable November, 1999. There is a fixed interest rate swap over
100% of the loan balance, effectively fixing the interest rate at 6.16% for the
life of the loan. The loan is secured by a second ranking fixed and floating
charge over all the present and future assets of the Australia Southern Railroad
Pty. Ltd. and SA Rail Pty. Ltd. and control over all indebtedness of the
Australia Southern Railroad Pty. Ltd. to Genesee & Wyoming Australia Pty. Ltd.
Schedule of Future Payments
- ---------------------------
The following is a summary of the maturities of long-term debt as of December
31, 1997 (amounts in thousands):
1998.............................................$1,157
1999.............................................19,035
2000..............................................2,771
2001..............................................2,822
2002.............................................36,667
Thereafter.......................................11,692
------
$74,144
=======
16
<PAGE>
Extraordinary Item
- ------------------
On June 2, 1995, the Company refinanced approximately $14.3 million of
previously existing notes and purchased approximately $6 million of rolling
stock previously under an operating lease by entering into a credit facilities
agreement. In conjunction with this refinancing transaction, an extraordinary
charge for prepayment penalties and other financing costs on the early
extinguishment of debt for approximately $851,000 ($494,000 net of income taxes)
was incurred. These amounts have been recorded in the accompanying consolidated
income statement as an extraordinary item, net of income taxes.
10. INTEREST RATE RISK MANAGEMENT:
-----------------------------
The Company uses derivative financial instruments, specifically interest rate
caps and interest rate swaps, to manage its variable interest rate risk on long-
term debt.
Interest Rate Swap--In November, 1997, a subsidiary of the Company entered into
- ------------------
a five-year interest rate swap agreement with a financial institution
effectively fixing its interest rate at 6.24% by exchanging its variable
interest rate on long-term debt for a fixed interest rate. The notional amount
under this agreement is $7.5 million. Management estimates the carrying value
of this interest rate swap to approximate fair value.
Interest Rate Swap--In November, 1997, a subsidiary of the Company entered into
- ------------------
a five-year interest rate swap agreement with a financial institution
effectively fixing its interest rate at 6.16% by exchanging its variable
interest rate on long-term debt for a fixed interest rate. The notional amount
under this agreement is $7.2 million. Management estimates the carrying value
of this interest rate swap to approximate fair value.
Interest Rate Swap--In October, 1996, the Company entered into a two-year
- ------------------
interest rate swap agreement with a financial institution whereby, effective
December 31, 1996, the Company fixed its LIBOR interest rate at 6.15% by
exchanging its variable interest rate on long-term debt for a fixed interest
rate. The notional amount under this agreement is $10.0 million. Management
estimates the carrying value of this interest rate swap to approximate fair
value.
Interest Rate Cap--In August, 1995, the Company entered into a three-year
- -----------------
interest rate cap agreement in order to cap the rate on three-month dollar
deposits, as defined, to a fixed rate of 8.0%. The notional amount under this
agreement reduces on a quarterly basis in varying amounts from $15,250,000 at
September 30, 1995, to $11,438,000 at September 30, 1998. The fees paid by the
Company for the interest rate cap were capitalized and are amortized over the
period covered by the agreement. Management estimates the carrying value of
this interest rate cap to approximate fair value.
11. EMPLOYEE BENEFIT PLANS:
-----------------------
Pension
- -------
The Company administers two noncontributory defined benefit plans, one of which
is for the employees of a subsidiary who are members of a union and who meet
minimum service requirements, the other of which is for non-union employees of
another subsidiary. Benefits are determined based on a fixed amount per year of
credited service. The Company's funding policy is to make contributions for
pension benefits based on actuarial computations which reflect the long-term
nature of the plans. The Company has met the minimum funding requirements
according to the Employee Retirement Income Security Act.
17
<PAGE>
Pension costs for the union pension plan for 1997, 1996 and 1995 were
approximately $69,000, $105,000, and $14,000, respectively. The 1997 and 1996
pension cost includes the estimated expense of terminating the defined benefit
plan due to the shut down of a subsidiary's operations (see Note 5.). The
pension liability for the union pension plan recognized in the accompanying
consolidated balance sheet at December 31, 1997 and 1996, was approximately $0
and $185,000, respectively. Subsequently, on January 31, 1998, the plan was
terminated and the vested assets were distributed to the plan members.
Pension costs for the non-union pension plan for 1997 and 1996 were
approximately $122,000 and $13,000, respectively. The pension liability for
the non-union pension plan recognized in the accompanying consolidated balance
sheet at December 31, 1997 and 1996, was approximately $385,000 and $263,000,
respectively.
Postretirement Benefits
- -----------------------
Historically, the Company has provided certain health care and life insurance
benefits for certain retired employees. Eligible employees include union
employees for one of its subsidiaries, and certain nonunion employees who have
reached the age of 55 with 30 or more years of service. The Company funds the
plan on a pay-as-you-go basis.
Total postretirement benefit costs for the years ended December 31, 1997, 1996
and 1995, were $33,000, $53,000 and $49,000, respectively. The funded status of
the plan at December 31, 1997 and 1996, was as follows (amounts in thousands):
<TABLE>
<S> <C> <C>
1997 1996
------- -------
Accumulated postretirement benefit obligation-
Fully eligible active participants $ 59 $ 58
Other active participants - 70
Retirees 433 420
---- ----
492 548
Plan assets at fair value - -
---- ----
Accumulated postretirement benefit obligation in excess of plan
assets 492 548
Unrecognized net gain resulting from change in actuarial 195
assumptions 151
---- ----
Accrued postretirement benefit cost $ 687 $ 699
==== ====
</TABLE>
For measurement purposes, an 8% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998. The rate was then assumed
to gradually decrease to 5% by the year 2002, at which time the rate was assumed
to remain level. To illustrate the effect of these assumptions, increasing the
assumed health care cost trend by 1% each year would increase the accumulated
postretirement benefit obligation as of December 31, 1998, by approximately
$32,000 and the net periodic postretirement benefit cost for 1998 by
approximately $4,000.
Relevant assumptions used in accounting for the postretirement benefit plan as
of December 31 were as follows:
18
<PAGE>
<TABLE>
<S> <C> <C>
1997 1996
---- ----
Weighted average discount rate 7.25% 7.75%
==== ====
</TABLE>
Employee Bonus Programs
- -----------------------
The Company has performance-based bonus programs which include a majority of non
union employees. Key employees are granted bonuses on a discretionary basis.
Total compensation of approximately $1.0 million, $730,000 and $308,000 was
awarded under the various bonus plans in 1997, 1996 and 1995, respectively.
Profit Sharing
- --------------
On December 1, 1997, the Company terminated a defined contribution profit-
sharing plan that it had maintained for two subsidiaries and distributed the
vested assets to the plan members. There were no contributions to the plan in
1997, 1996 or 1995.
Effective January 1, 1997, the Company established a 401(k) plan covering
employees of the Company's industrial switching subsidiary who have met
specified length of service requirements. The 401(k) plan qualifies under
Section 401(k) of the Internal Revenue Code as a salary reduction plan.
Employees may elect to contribute a certain percentage of their salary on a
before-tax basis. The Company matches 100% of the participants contributions up
to 5% of the participants salary. The Company's contribution to the plan in
1997 was approximately $63,000.
Effective January 1, 1994, the Company established two 401(k) plans covering
union and non union employees who have met specified length of service
requirements. The 401(k) plans qualify under Section 401(k) of the Internal
Revenue Code as salary reduction plans. Employees may elect to contribute a
certain percentage of their salary on a before-tax basis. For non union
employees, the Company matches the participants contributions up to 1-1/2% of
the participants salary. The Company's contributions to the plans in 1997, 1996
and 1995 were approximately $163,000, $110,000 and $83,000, respectively.
Postemployment Benefits
- -----------------------
The Company does not provide postemployment benefits to its employees.
12. INCOME TAXES:
-------------
The Company files consolidated U.S. federal income tax returns which include all
of its subsidiaries. The components of the provision for income taxes on income
before extraordinary item are as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
------- ------- -------
Current-
Federal $ 2,095 $ 2,779 $ 550
State 670 1,014 111
Deferred 2,676 227 811
------ ------ ------
$ 5,441 $ 4,020 $ 1,472
====== ====== ======
</TABLE>
The provision for income taxes on income before extraordinary item in each
period differs from that which would be computed by applying the statutory U.S.
federal
19
<PAGE>
income tax rate to the income before taxes. The following is a summary
of the effective tax rate reconciliation:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Tax provision at statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit 5.7% 5.6% 4.0%
Other, net 0.8% 0.9% 2.6%
------ ------ ------
40.5% 40.5% 40.6%
====== ====== ======
</TABLE>
The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred income tax liability
(amounts in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------- ---------
Deferred tax assets-
<S> <C> <C>
Accruals and reserves not deducted for tax
purposes until paid $ 2,415 $ 1,828
Alternative minimum tax credits 1,837 1,752
Net operating losses 136 -
Postretirement benefits 233 259
Other (78) 154
------- -------
4,543 3,993
Deferred tax liability -- differences in
depreciation and amortization (10,490) (7,081)
------- -------
Net deferred tax liability ($5,947) ($3,088)
======= =======
</TABLE>
The Company's alternative minimum tax credits can be carried forward
indefinitely; however, the Company must achieve future regular taxable income in
order to realize this credit. Management does not believe that a valuation
allowance is required for the deferred tax assets based on anticipated future
profit levels and the reversal of current temporary differences.
13. GRANTS FROM GOVERNMENTAL AGENCIES:
----------------------------------
During 1997, three subsidiaries of the Company received grants from the State of
Pennsylvania of $2,500,000, $250,000 and $16,000, respectively, for
rehabilitation of portions of their track. The agreements require the State of
Pennsylvania to reimburse the subsidiaries for 75% of the total cost of specific
projects. These projects were substantially complete as of December 31, 1997.
Another subsidiary of the Company received a grant from the State of Virginia of
$135,000 for rehabilitation of a portion of the subsidiary's track. This
project was completed as of December 31, 1997.
In April, 1996, in connection with the purchase of assets of Pittsburg & Shawmut
Railroad Company, Mountain Laurel Railroad Company and Red Bank Railroad Company
(see Note 2.), the Company assumed a deferred grant of $3.2 million from the
State of Pennsylvania.
During 1995, a subsidiary of the Company received a grant from the State of
Pennsylvania of $3,500,000 for rehabilitation of a portion of the subsidiary's
20
<PAGE>
track. The agreement requires the State of Pennsylvania to reimburse the
subsidiary for 75% of the total costs of the project. This project was
substantially complete as of December 31, 1996. Another subsidiary of the
Company received a grant from the State of Louisiana of $300,000 for
rehabilitation of a portion of the subsidiary's track. This project has been
completed.
During a prior year, a subsidiary of the Company received a grant from the State
of New York of $4,000,000 for the rehabilitation of a portion of the
subsidiary's track. This subsidiary also received a grant of $900,000 from the
Federal Railroad Administration for the same rehabilitation project. The State
of New York is entitled to 63.8% of the net liquidation value of the
rehabilitated track upon abandonment. The State of New York agreement also
requires the subsidiary to pay a usage fee for 10 years beginning on April 1,
1994, for all loaded cars moved over the subsidiary's track. Cumulative fees
are limited to $4,000,000. As an alternative to paying the usage fee, the
subsidiary, at its discretion, may make capital improvements, proposed by March
1 of the following year, of equal or greater value to the usage fee accrued
during the year. The Company believes that it has proposed and/or performed
capital improvements of equal or greater value which eliminates any liability
associated with the usage fee.
All of the aforementioned grants do not represent a future liability of the
Company unless the Company abandons the rehabilitated track structure within a
specifi ed period of time, as defined in the respective agreements. As the
Company does not intend to abandon the track, the Company has recorded additions
to road property and has deferred the amount of the grants as the rehabilitation
expenditures have been incurred. The amortization of the deferred grant is a
noncash offset to depreciation expense over the useful life of the related
assets and is not included as taxable income. During the years ended December
31, 1997, 1996 and 1995, the Company recorded offsets to depreciation expense
from grant amortization of $719,000, $638,000 and $415,000, respectively.
14. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company has built its portfolio of railroad properties primarily through the
purchase or lease of road and track structure and through operating agreements.
These transactions have related only to the physical assets of the railroad
property. Typically, the Company does not assume the operations or liabilities
of the divesting railroads.
In connection with the Company's purchase of certain selected assets in
Australia (see Note 2.), the Company has committed to the Commonwealth of
Australia to spend approximately $34.1 million (AU $52.3 million) to
rehabilitate track structures and equipment by December 31, 2002. The
Commonwealth Government may require the payment of any shortfall between the
actual expenditure incurred from the date of acquisition to December 31, 2002,
and the contracted commitment of approximately $34.1 million (AU $52.3 million).
This commitment may be renegotiated if there is a significant change in
operating conditions outside the control of the Company.
The Company routinely interchanges traffic with certain Class I railroads that
are currently undergoing consolidations. These consolidations present both risk
and opportunity for the Company. The acquisition of Conrail may impact the
Company's operations in New York and Pennsylvania. Until the details of these
consolidations reaches greater clarity, the Company is unable to determine the
impact on its operations.
In connection with the Company's lease of its 185-mile line in Oregon (see Note
8.), the Company has committed to the lessor to rehabilitate 25 miles of track
over five years, beginning February, 1993, at an estimated total cost of
21
<PAGE>
approximately $5.0 million. As of December 31, 1997, the Company has completed
approximately $3.5 million of this rehabilitation.
The Company is a defendant in certain lawsuits resulting from railroad and
industrial switching operations, one of which includes the commencement of a
criminal investigation. Management believes that the Company has adequate
defenses to any criminal charge which may arise and that adequate provision has
been made in the financial statements for any expected liabilities which may
result from disposition of such lawsuits. While it is possible that some of the
foregoing matters may be resolved at a cost greater than that provided for, it
is the opinion of management that the ultimate liability, if any, will not be
material to the Company's results of operations or financial position.
15. STOCKHOLDERS' EQUITY:
---------------------
Warrants
- --------
In conjunction with the 1996 amendment and restatement of the Company's credit
facilities, detachable warrants were issued to a financial institution to
purchase 41,847 shares of Class A Common Stock at an exercise price of $0.0005
per share. These warrants were exercised in January, 1998. Management has
valued the warrants at approximately $471,000, the amount of which was recorded
as a debt discount and recorded in long-term debt. The discount is being
amortized over the period covered by the related credit facilities agreement
using the straight-line method, which is not materially different from the
amortization computed using the effective-interest method.
Initial Public Offering and Related Stock Transactions
- ------------------------------------------------------
On June 28, 1996 the Company closed an underwritten initial public offering
("IPO") of 3,045,200 shares of Class A Common Stock (the "Common Stock
Offering"), of which 2,897,200 shares were offered by the Company and 148,000
shares were offered by a selling stockholder. The gross proceeds to the Company
of the Common Stock Offering of $49.2 million, net of underwriters' commission
of $3.4 million, were used to pay down borrowings on the credit facilities.
Other costs of the IPO of $1.0 million were paid by the Company.
In connection with the Common Stock Offering, the Company, effective June 10,
1996, changed the par value of its Class A and Class B Common Stock from $10 per
share to $.01 per share and increased the shares authorized to 12 million and
1.5 million shares, respectively. The rights and privileges of Class B Common
Stock changed to substantially the same as Class A Common Stock, except it
carries 10 votes per share, is convertible into Class A Common Stock and has
transfer restrictions. The Class A Common Stock also has a 10% dividend
preference over Class B Common Stock, as and if dividends are declared by the
Board of Directors. Also, the Company executed an 18.5 to 1 stock split and
reclassified the Company's outstanding Class A Common Stock into Class A and
Class B Common Stock, depending on the election of the shareholder.
All references in the consolidated financial statements of the Company to the
number of shares authorized and outstanding of Class A and Class B Common Stock
have been retroactively adjusted to reflect the reclassification of the capital
stock and the stock split.
16. STOCK-BASED COMPENSATION PLANS:
-------------------------------
In 1996, the Company established an incentive and nonqualified stock option plan
for key employees and a nonqualified stock option plan for nonemployee directors
(collectively referred to hereafter as the "Stock Option Plans"). In addition,
the Company established an employee stock purchase plan ("Stock Purchase Plan").
The Company accounts for these plans under APB Opinion No. 25, under which no
22
<PAGE>
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123, the Company's net income
and earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C> <C>
Net Income: As reported $7,998 $5,905
Pro Forma 7,332 5,609
Basic EPS: As reported $ 1.52 $ 1.54
Pro Forma 1.40 1.49
Diluted EPS: As reported $ 1.47 $ 1.49
Pro Forma 1.34 1.43
</TABLE>
The Company may sell up to 450,000 shares of stock to its full-time employees
under the Stock Purchase Plan. At December 31, 1997, 1,996 shares had been
purchased under this plan. The Company sells shares at 100% of the stock's
market price at date of purchase, therefore, no compensation cost exists for
this plan.
In 1997, the Company increased the number of options it may grant under its
Stock Option Plan for employees by 200,000. The Company may now grant an
aggregate of 700,000 shares of Class A Common Stock under its Stock Option
Plans. Under both Plans, the option price equals at least the stock's market
price on the date of grant, except that grants of incentive stock options to
employees with significant voting control must be at least the market price plus
ten percent. The Stock Option Committee of the Company's Board of Directors has
discretion to determine employee grantees, dates and amounts of grants, vesting
and expiration dates. No option may be exercised after ten years from date of
grant (or five years in the case of incentive stock options to employees with
significant voting control), although the Stock Option Committee may establish a
shorter option term. The following is a summary of stock option activity for
1997 and 1996:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
December 31, 1997 December 31, 1996
----------------- --------------------
Wtd. Wtd.
Average Average
Shares Exercise Shares Exercise
Price Price
<S> <C> <C> <C> <C>
Outstanding at beginning of the
year 421,500 $18.61 --- ---
Granted 4,000 27.25 421,500 $18.61
Exercised 3,275 17.00 --- ---
Forfeited 15,250 25.11 --- ---
Outstanding at end of year 406,975 18.46 421,500 $18.61
Exercisable at end of year 101,354 18.41 --- ---
Weighted average fair value of
options granted --- $17.51 --- $10.29
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.5 percent; expected dividend yield of
0 percent; expected lives of 5 and 10 years; expected volatility of 54 percent.
The weighted-average fair value of options was $17.51 and $10.29 in 1997 and
1996, respectively.
23
<PAGE>
17. GEOGRAPHIC REGION AND BUSINESS SEGMENT INFORMATION
--------------------------------------------------
The Company operates in two business segments: Railroad Operations, which
includes operating short line and regional railroads, and buying, selling,
leasing and managing railroad transportation equipment; and Industrial
Switching, which includes providing freight car switching and related services
to United States industries with extensive railroad facilities within their
complexes. During 1997, the Company expanded its railroad operations
geographically to include a new subsidiary operating in Australia. During 1996,
the Company expanded its business to include industrial switching and related
services through the acquisition of all of the common stock of Rail Link, Inc.
The following tables present sales and other financial information for each
geographic region for 1997 and for each business segment for the years 1997 and
1996:
<TABLE>
<CAPTION>
17. GEOGRAPHIC REGION (AMOUNTS IN THOUSANDS)
- ---------------------------------------- --------------- -------------- -------------
1997 U.S. Australia Total
- ---------------------------------------- --------------- -------------- -------------
<S> <C> <C> <C>
Sales to unaffiliated customers $ 96,212 $ 7,431 $103,643
Operating income 15,738 705 16,443
Identifiable assets 169,969 40,563 210,532
Depreciation and amortization 6,753 246 6,999
Capital expenditures 13,871 20 13,891
</TABLE>
<TABLE>
<CAPTION>
Business Segment
(amounts in thousands)
Railroad Industrial
1997 Operations Switching Total
- ---------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Sales to unaffiliated customers $ 88,791 $14,852 $103,643
Operating income (loss) 16,672 (229) 16,443
Identifiable assets 198,296 12,236 210,532
Depreciation and amortization 6,169 830 6,999
Capital expenditures 13,146 745 13,891
</TABLE>
<TABLE>
<CAPTION>
Business Segment
(amounts in thousands)
Railroad Industrial -------------
1996 Operations Switching Total
- ----------------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Sales to unaffiliated customers $ 75,998 $ 1,797 $ 77,795
Operating income 13,865 129 13,994
Identifiable assets 131,693 13,646 145,339
Depreciation and amortization 5,930 122 6,052
Capital expenditures 8,138 36 8,174
</TABLE>
24
<PAGE>
18. QUARTERLY FINANCIAL DATA:
-------------------------
<TABLE>
<CAPTION>
Quarterly Results (Unaudited)
First Second Third Fourth
(in thousands, except per share data) Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Operating revenues........................ $24,092 $23,479 $23,670 $32,402
Income from operations..................... 4,035 4,171 3,901 4,336
Net income................................. 2,134 2,157 2,127 1,580
Basic earnings per share 0.41 0.40 0.41 0.30
- -----------------------------------------------------------------------------------------------------------------
1996
Operating revenues........................ $16,608 $19,009 $19,022 $23,156
Income from operations..................... 2,814 4,173 3,609 3,398
Net income................................ 965 1,559 1,763 1,619
Basic earnings per share 0.41 0.64 0.34 0.30
- -----------------------------------------------------------------------------------------------------------------
1995
Operating revenues........................ $13,391 $13,243 $13,600 $13,154
Income from operations..................... 1,526 1,427 1,982 1,638
Income before extraordinary item.......... 502 404 654 1,638
Net income (loss)......................... 502 (90) 654 591
Income per share before extraordinary item. 0.21 0.17 0.28 0.25
Extraordinary item........................ - (0.21) - -
Basic earnings (loss) per share............ 0.21 (0.04) 0.28 0.25
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The fourth quarter of 1996 includes a $1,360,000 nonrecurring charge to record
certain shutdown costs associated with the closing of a subsidiary (see Note
5.).
The second quarter of 1995 includes a $494,000 extraordinary item, net of
related income tax benefit of $357,000, resulting from the early extinguishment
of debt (see Note 9.).
25
<PAGE>
EXHIBIT 4.1
SECOND AMENDED AND RESTATED
---------------------------
REVOLVING CREDIT AGREEMENT
--------------------------
Dated as of October 31, 1997
among
GENESEE & WYOMING INC.,
AS BORROWER
THE SUBSIDIARIES OF GENESEE & WYOMING INC. LISTED ON
SCHEDULE I HERETO,
AS GUARANTORS
BANKBOSTON, N.A. AND
THE OTHER LENDING INSTITUTIONS LISTED
ON SCHEDULE II HERETO,
AS BANKS
LASALLE NATIONAL BANK AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS CO-AGENTS
and
BANKBOSTON, N.A., AS ISSUING BANK AND AGENT
with
BANCBOSTON SECURITIES, INC.
AS ARRANGER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION.................................. 2
1.1. Definitions....................................................... 2
1.2. Rules of Interpretation........................................... 18
2. THE REVOLVING CREDIT FACILITY............................................ 19
2.1. Commitment to Lend................................................ 19
2.2. Commitment Fees................................................... 19
2.3. Reduction of Total Commitment..................................... 19
2.4. The Revolving Credit Notes........................................ 20
2.5. Interest on Loans................................................. 20
2.6. Requests for Loans................................................ 20
2.7. Conversion Options................................................ 21
2.7.1. Conversion to Different Type of Loan....................... 21
2.7.2. Continuation of Type of Loan............................... 21
2.7.3. Eurodollar Rate Loans...................................... 22
2.8. Funds for Loans................................................... 22
2.8.1. Funding Procedures......................................... 22
2.8.2. Advances by Agent.......................................... 22
3. MANDATORY PREPAYMENT OF LOANS............................................ 23
3.1. Maturity of Loans................................................. 23
3.2. Mandatory Payments of Loans....................................... 23
3.2.1. Mandatory Repayments of Loans.............................. 23
3.2.2. Mandatory Prepayments from Asset Sales..................... 23
3.2.3. Mandatory Prepayments from New Equity...................... 23
3.2.4. Mandatory Prepayments from Debt Offerings.................. 24
3.2.5. Application of Proceeds.................................... 24
3.3. Optional Prepayments of Loans..................................... 24
4. LETTERS OF CREDIT........................................................ 25
4.1. Letter of Credit Commitments...................................... 25
4.1.1. Commitment to Issue Letters of Credit...................... 25
4.1.2. Letter of Credit Applications.............................. 25
4.1.3. Terms of Letters of Credit................................. 25
4.1.4. Reimbursement Obligations of Banks......................... 26
4.1.5. Participations of Banks.................................... 26
4.2. Reimbursement Obligation of the Borrower.......................... 26
4.3. Letter of Credit Payments......................................... 27
4.4. Obligations Absolute.............................................. 28
4.5. Reliance by Issuer................................................ 28
4.6. Letter of Credit Fee.............................................. 29
5. CERTAIN GENERAL PROVISIONS............................................... 29
5.1. Agent's Fees...................................................... 29
5.2. Funds for Payments................................................ 29
5.2.1. Payments to Agent.......................................... 29
5.2.2. No Offset, etc............................................. 30
5.2.3. Currency Matters........................................... 30
5.2.3.1........................................................ 30
</TABLE>
<PAGE>
-2-
<TABLE>
<S> <C>
5.2.3.1. Currency of Account................................. 30
5.2.3.2. Currency Fluctuations............................... 31
5.3. Computations...................................................... 32
5.4. Inability to Determine Eurodollar Rate............................ 32
5.5. Illegality........................................................ 32
5.6. Additional Costs, etc............................................. 33
5.7. Capital Adequacy.................................................. 34
5.8. Certificate....................................................... 35
5.9. Indemnity......................................................... 35
5.10. Interest After Default........................................... 35
5.10.1. Overdue Amounts........................................... 35
5.10.2. Amounts Not Overdue....................................... 35
6. GUARANTY................................................................. 35
6.1. Guaranty of Payment and Performance............................... 36
6.2. Guarantors' Agreement to Pay Enforcement Costs, etc............... 36
6.3. Waivers by Guarantors; Banks' Freedom to Act...................... 36
6.4. Unenforceability of Obligations Against Borrower.................. 37
6.5. Subrogation; Subordination........................................ 38
6.5.1. Waiver of Rights Against Borrower.......................... 38
6.5.2. Subordination.............................................. 38
6.5.3. Provisions Supplemental.................................... 39
6.6. Security; Setoff.................................................. 39
6.7. Further Assurances................................................ 39
6.8. Termination; Reinstatement........................................ 39
6.9. Successors and Assigns............................................ 40
7. REPRESENTATIONS AND WARRANTIES........................................... 40
7.1. Corporate Authority............................................... 40
7.1.1. Incorporation; Good Standing............................... 40
7.1.2. Authorization.............................................. 40
7.1.3. Enforceability............................................. 41
7.2. Governmental Approvals............................................ 41
7.3. Title to Properties; Leases....................................... 41
7.4. Financial Statements and Projections.............................. 41
7.4.1. Financial Statements....................................... 41
7.4.2. Projections................................................ 42
7.5. No Material Changes, etc.; Solvency............................... 42
7.5.1. Changes.................................................... 42
7.5.2. Solvency................................................... 42
7.6. Franchises, Patents, Copyrights, etc.............................. 42
7.7. Litigation........................................................ 43
7.8. No Materially Adverse Contracts, etc.............................. 43
7.9. Compliance with Other Instruments, Laws, etc...................... 43
7.10. Tax Status....................................................... 43
7.11. No Event of Default.............................................. 43
7.12. Holding Company and Investment Company Acts...................... 44
7.13. Absence of Financing Statements, etc............................. 44
7.14. Certain Transactions............................................. 44
</TABLE>
<PAGE>
-3-
<TABLE>
<S> <C>
7.15. Employee Benefit Plans........................................... 44
7.15.1. In General................................................ 44
7.15.2. Terminability of Welfare Plans............................ 44
7.15.3. Guaranteed Pension Plans.................................. 45
7.15.4. Multiemployer Plans....................................... 45
7.16. Use of Proceeds; Regulations U and X............................. 45
7.17. Environmental Compliance......................................... 46
7.18. Subsidiaries, etc................................................ 47
7.19. Capitalization................................................... 48
7.20. Fiscal Year...................................................... 48
7.21. Operation of Railroads........................................... 48
7.22. Disclosure....................................................... 48
8. AFFIRMATIVE COVENANTS OF THE BORROWER.................................... 49
8.1. Punctual Payment.................................................. 49
8.2. Maintenance of Office............................................. 49
8.3. Records and Accounts.............................................. 49
8.4. Financial Statements, Certificates and Information................ 49
8.5. Notices........................................................... 51
8.5.1. Defaults................................................... 51
8.5.2. Environmental Events....................................... 51
8.5.3. Notice of Litigation and Judgments......................... 51
8.5.4. Notification of Derailments................................ 51
8.6. Corporate Existence; Maintenance of Properties.................... 52
8.7. Insurance......................................................... 52
8.8. Taxes............................................................. 52
8.9. Inspection of Properties and Books, etc........................... 53
8.9.1. General.................................................... 53
8.9.2. Communications with Accountants............................ 53
8.10. Compliance with Laws, Contracts, Licenses, and Permits........... 53
8.11. Employee Benefit Plans........................................... 54
8.12. Use of Proceeds.................................................. 54
8.13. Further Assurances............................................... 54
8.14. Additional Restricted Subsidiaries............................... 54
9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER............................... 54
9.1. Restrictions on Indebtedness...................................... 55
9.2. Restrictions on Liens............................................. 56
9.3. Restrictions on Investments....................................... 58
9.4. Distributions and Restricted Payments............................. 61
9.5. Merger, Acquisitions and Disposition of Assets.................... 61
9.5.1. Mergers and Acquisitions................................... 61
9.5.2. Disposition of Assets...................................... 61
9.6. Sale and Leaseback................................................ 62
9.7. Compliance with Environmental Laws................................ 62
9.8. CSX Remaining Debt................................................ 62
9.9. Employee Benefit Plans............................................ 63
9.10. Business Activities.............................................. 63
9.11. Capitalization................................................... 63
</TABLE>
<PAGE>
-4-
<TABLE>
<S> <C>
9.12. Fiscal Year...................................................... 63
9.13. Negative Pledges................................................. 64
9.14. Transactions with Affiliates..................................... 64
10. FINANCIAL COVENANTS OF THE BORROWER..................................... 64
10.1. Funded Debt to EBITDA............................................ 64
10.2. Cash Flow Coverage............................................... 64
10.3. EBITDA less Capital Expenditures to Interest Ratio............... 65
10.4. Calculation of Financial Covenants............................... 65
11. CLOSING CONDITIONS...................................................... 65
11.1. Loan Documents................................................... 65
11.2. Certified Copies of Charter and Partnership Documents............ 65
11.3. Corporate or Other Action........................................ 66
11.4. Incumbency Certificate........................................... 66
11.5. Opinion of Counsel............................................... 66
11.6. Delivery of Agreements........................................... 66
11.7. Payment of Fees.................................................. 66
11.8. Certain Assignments.............................................. 66
11.9. Disbursement Instructions........................................ 67
12. CONDITIONS TO ALL BORROWINGS............................................ 67
12.1. Representations True; No Event of Default........................ 67
12.2. No Legal Impediment.............................................. 67
12.3. Governmental Regulation.......................................... 67
12.4. Proceedings and Documents........................................ 67
13. EVENTS OF DEFAULT; ACCELERATION; ETC.................................... 68
13.1. Events of Default and Acceleration............................... 68
13.2. Termination of Commitments....................................... 71
13.3. Remedies......................................................... 71
14. SETOFF.................................................................. 72
15. THE AGENT............................................................... 73
15.1. Authorization.................................................... 73
15.2. Employees and Agents............................................. 73
15.3. No Liability..................................................... 73
15.4. No Representations............................................... 74
15.4.1. General................................................... 74
15.4.2. Closing Documentation, etc................................ 74
15.5. Payments......................................................... 75
15.5.1. Payments to Agent......................................... 75
15.5.2. Distribution by Agent..................................... 75
15.5.3. Delinquent Banks.......................................... 75
15.6. Holders of Revolving Credit Notes................................ 76
15.7. Indemnity........................................................ 76
15.8. Agent as Bank.................................................... 76
15.9. Resignation...................................................... 76
15.10. Notification of Defaults and Events of Default.................. 77
15.11. Duties of Co-Agents............................................. 77
16. EXPENSES................................................................ 77
17. INDEMNIFICATION......................................................... 78
</TABLE>
<PAGE>
-5-
<TABLE>
<S> <C>
18. SURVIVAL OF COVENANTS, ETC.............................................. 79
19. ASSIGNMENT AND PARTICIPATION............................................ 79
19.1. Conditions to Assignment by Bank................................. 79
19.2. Certain Representations and Warranties; Limitations; Covenants... 80
19.3. Register......................................................... 81
19.4. New Revolving Credit Notes....................................... 82
19.5. Participations................................................... 82
19.6. Disclosure....................................................... 82
19.7. Assignee or Participant Affiliated with the Borrower............. 83
19.8. Miscellaneous Assignment Provisions.............................. 83
19.9. Assignment by Borrower........................................... 84
20. NOTICES, ETC............................................................ 84
21. GOVERNING LAW........................................................... 84
22. HEADINGS................................................................ 85
23. COUNTERPARTS............................................................ 85
24. ENTIRE AGREEMENT, ETC................................................... 85
25. WAIVER OF JURY TRIAL, ETC............................................... 85
26. CONSENTS, AMENDMENTS, WAIVERS, ETC...................................... 86
27. SEVERABILITY............................................................ 86
28. TRANSITIONAL ARRANGEMENTS............................................... 86
28.1. Prior Credit Agreement Superseded................................. 86
28.2. Return and Cancellation of Notes; Release of Collateral.......... 87
28.3. Interest and Fees under Superseded Agreement..................... 87
</TABLE>
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
*Exhibit A Form of Revolving Credit Note
*Exhibit B Form of Loan Request
*Exhibit C Form of Compliance Certificate
*Exhibit D Form of Instrument of Adherence (Guaranty)
*Exhibit E Form of Assignment and Acceptance
*Schedule I Guarantors
*Schedule II Banks and Commitments
*Schedule 7.3 Titles to Properties; Leases
*Schedule 7.7 Litigation
*Schedule 7.17 Environmental Compliance
*Schedule 7.18 Subsidiaries; Joint Ventures
*Schedule 7.21 Operating Locations
*Schedule 8.7 Insurance
*Schedule 9.1 Existing Indebtedness
*Schedule 9.2 Existing Liens
*Schedule 9.3 Existing Investments
*OMITTED EXHIBITS AND SCHEDULES
UPON WRITTEN REQUEST, THE REGISTRANT WILL PROVIDE COPIES OF ANY OF THE
REFERENCED OMITTED EXHIBITS AND SCHEDULES.
<PAGE>
SECOND AMENDED AND RESTATED
---------------------------
REVOLVING CREDIT AGREEMENT
--------------------------
This SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of
October 31, 1997 by and among (a) GENESEE & WYOMING INC., a Delaware corporation
("GWI" or the "Borrower"), (b) the Subsidiaries of the Borrower listed on
Schedule I hereto, (c) BANKBOSTON, N.A. (f/k/a The First National Bank of
- ----------
Boston), a national banking association and the other lending institutions
listed on Schedule II hereto, (d) LASALLE NATIONAL BANK and THE FIRST NATIONAL
-------- --
BANK OF CHICAGO, as co-agents for such lending institutions, (e) BANKBOSTON,
N.A. (f/k/a The First National Bank of Boston) as Issuing Bank and (f)
BANKBOSTON, N.A. (f/k/a The First National Bank of Boston), as agent for itself
and such other lending institutions.
WHEREAS, pursuant to that certain Amended and Restated Revolving Credit and
Term Loan Agreement dated as of February 8, 1996 (as heretofore amended, the
"Prior Credit Agreement"), certain Banks which are party to this Credit
Agreement and certain other lenders have made loans to the Borrower and its
Subsidiaries for the purposes described therein; and
WHEREAS, the Prior Credit Agreement amended and restated in their entirety
each of that certain Revolving Credit Agreement dated as of June 2, 1995 among
the Borrower, its Subsidiaries, certain of the Banks and the Agent (as
heretofore amended, the "Original Credit Agreement") and that certain Revolving
Credit Agreement dated as of April 10, 1991 between Chicago & Illinois Midland
Railway Company and BKB (the "CIMR Credit Agreement"); and
WHEREAS, GWI has requested the Banks and the Agent amend and restate the
Prior Credit Agreement in its entirety to, among other things,
(a) increase the Commitments of the Banks from $32,000,000 to $65,000,000;
(b) convert the loans under the Prior Credit Agreement into Loans
hereunder;
(c) make GWI the sole Borrower hereunder and certain of its Subsidiaries
Guarantors hereunder;
(d) release the security interests granted in accordance with the Prior
Credit Agreement; and
<PAGE>
-2-
(e) make certain other changes to the terms and provisions of the Prior
Credit Agreement;
NOW THEREFORE, the Borrower, all of the Banks, the Co-Agents, the Issuing
Bank and the Agent hereby agree that the Prior Credit Agreement (including all
the schedules and exhibits thereto) is hereby amended and restated in its
entirety and remains in force and effect only as set forth herein (including the
schedules and exhibits attached hereto) and the Loans and Letters of Credit
(each as defined in the Prior Credit Agreement) shall constitute Loans and
Letters of Credit hereunder.
1. DEFINITIONS AND RULES OF INTERPRETATION.
---------------------------------------
1.1 DEFINITIONS.
-----------
The following terms shall have the meanings set forth in this (S)1 or
elsewhere in the provisions of this Credit Agreement referred to below:
Adjustment Date. Each April 1, June 1, September 1 and December 1 of each
---------------
calendar year.
Affiliate. Any Person that would be considered to be an affiliate of the
---------
Borrower under Rule 144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.
Agent. BankBoston, N.A. acting as agent for the Banks.
-----
Agent's Fees. See (S)5.1.
------------
Agent's Head Office. The Agent's head office located at 100 Federal
-------------------
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agent's Special Counsel. Bingham Dana LLP or such other counsel as may be
-----------------------
approved by the Agent.
Applicable Margin. For each period commencing on an Adjustment Date
-----------------
through the date immediately preceding the next Adjustment Date (each a "Rate
Adjustment Period"), the Applicable Margin shall be the applicable margin set
forth below with respect to the Borrower's Funded Debt to EBITDA Ratio, as
determined for the fiscal period of the Borrower and its Restricted Subsidiaries
ending immediately prior to the applicable Rate Adjustment Period (except for
any Rate Adjustment Period beginning on April 1 of any calendar year for which
the Applicable Margin will be determined by reference to the Borrower's and its
Restricted Subsidiaries Funded Debt to EBITDA Ratio for the fiscal period ending
on the immediately preceding December 31).
<PAGE>
-3-
<TABLE>
<CAPTION>
Base Eurodollar Letter of Credit Commitment
Rate Rate Applicable Fee
Funded Debt to EBITDA Applicable Applicable Margin Applicable
Level Ratio Margin Margin ----------------- Margin
- ----------- ------------------------------------------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I Greater than or equal to 3.00 to 1.00 0% 1.50% 1.50% 0.375%
- -----------------------------------------------------------------------------------------------------------------
II 0% 1.25% 1.25% 0.375%
Less than 3.00 to 1.00 but greater than or
equal to 2.50 to 1.00
- -----------------------------------------------------------------------------------------------------------------
III 0% 1.00% 1.00% 0.300%
Less than 2.50 to 1.00 but greater than or
equal to 1.50 to 1.00
- -----------------------------------------------------------------------------------------------------------------
IV 0% 0.75% 0.75% 0.250%
Less than 1.50 to 1.00
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding the foregoing, (a) for Loans outstanding and commitment fees
incurred during the period commencing on the Closing Date through April 1, 1998,
the Applicable Margin shall be the Applicable Margin set forth as Level III
above, (b) if the Borrower fails to deliver any Compliance Certificate pursuant
to (S)8.4(c) hereof by the next occurring Adjustment Date then, for the period
commencing on the next Adjustment Date to occur subsequent to such failure
through the date immediately following the date on which such Compliance
Certificate is delivered, the Applicable Margin shall be the highest Applicable
Margin set forth above.
Apus Railcar Lease. The Master Lease dated as of March 31, 1997 between
------------------
Apus Rail One, Inc., as Lessor and Leasing, as Lessee, with respect to certain
open top hoppers, gondolas and box cars, in substantially the form delivered to
the Agent prior to the date hereof, the present value of the obligations in
respect of which will not exceed $13,000,000 at any time.
Assignment and Acceptance. See (S)19.1.
-------------------------
Australian Dollars or Aus. $. Dollars in lawful currency of Australia.
------------------ ------
Balance Sheet Date. December 31, 1996.
------------------
Banks. BKB and the other lending institutions listed on Schedule II hereto
----- -----------
and any other Person who becomes an assignee of any rights and obligations of a
Bank pursuant to (S)19.
Base Rate. The higher of (i) the annual rate of interest announced from
---------
time to time by BKB at its head office in Boston, Massachusetts, as its "base
rate" and (ii) one-half of one percent (1/2%) above the Federal Funds Effective
Rate.
Base Rate Loans. Revolving Credit Loans bearing interest calculated by
---------------
reference to the Base Rate.
<PAGE>
-4-
BKB. BankBoston, N.A. (f/k/a The First National Bank of Boston), a
---
national banking association, in its individual capacity.
Borrower. See preamble.
--------
BPR. Buffalo & Pittsburgh Railroad, Inc., a Delaware corporation.
---
Bridge Rehabilitation Loan Agreement. The Track Rehabilitation Loan and
------------------------------------
Security Agreement dated as of July 3, 1996 between IMR and the State of
Illinois, acting through its Department of Transportation, providing for loans
from the State of Illinois, acting through its Department of Transportation, in
aggregate principal amount of not more than $900,000, having an interest rate of
three percent (3%) per annum and a term of ten years, in substantially the form
delivered to the Agent prior to the date hereof.
Bridge Rehabilitation Project. The replacement by IMR of the Pecan Creek
-----------------------------
Bridge (Bridge 532) on the rail line between Havana, Illinois and Springfield,
Illinois, the full costs and expenses of which have been financed pursuant to
the Bridge Rehabilitation Loan Agreement.
Business Day. Any day on which banking institutions in Boston,
------------
Massachusetts are open for the transaction of banking business and, in the case
of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day.
Canadian Dollars or Cdn. $. Dollars in lawful currency of Canada.
---------------- ------
Capital Assets. Fixed assets, both tangible (such as land, buildings,
--------------
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
--------
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.
Capital Expenditures. Amounts paid or indebtedness incurred by the
--------------------
Borrower or any of its Restricted Subsidiaries in connection with the purchase
or lease by the Borrower or any of its Restricted Subsidiaries of Capital Assets
that would be required to be capitalized and shown on the balance sheet of such
Person in accordance with generally accepted accounting principles.
Capitalized Leases. Leases under which the Borrower or any of its
------------------
Restricted Subsidiaries is the lessee or obligor, the discounted future rental
payment obligations under which are required to be capitalized on the balance
sheet of the lessee or obligor in accordance with generally accepted accounting
principles.
CCTR. Corpus Christi Terminal Railroad, Inc., a Delaware corporation.
----
CERCLA. See (S)7.17.
------
<PAGE>
-5-
Closing Date. The first date on which the conditions set forth in (S)11
------------
and (S)12 have been satisfied and any Loans are to be converted or made or any
Letter of Credit is to be issued hereunder.
Co-Agents. Collectively, LaSalle National Bank, a national banking
---------
association, and The First National Bank of Chicago, a national banking
association.
Code. The Internal Revenue Code of 1986.
----
Commitment. With respect to each Bank the amount set forth in Schedule II
---------- -----------
hereto as the amount of such Bank's commitment to make Loans to the Borrower, as
the same may be reduced from time to time; or if such commitment is terminated
pursuant to the provisions hereof, zero.
Commitment Percentage. With respect to each Bank, the percentage set forth
---------------------
on Schedule II hereto as such Bank's percentage of the aggregate Commitments of
-----------
all of the Banks.
Compliance Certificate. See (S)8.4(c).
----------------------
Consolidated or consolidated. With reference to any term defined herein,
----------------------------
shall mean that term as applied to the accounts of the Borrower and its
Restricted Subsidiaries, consolidated in accordance with generally accepted
accounting principles.
Consolidated Cash Flow. For any fiscal period of the Borrower and its
----------------------
Restricted Subsidiaries, an amount equal to the sum of (a) Consolidated EBITDA
for such fiscal period, minus (b) cash tax payments made during such period,
-----
minus (c) the amount of Capital Expenditures made by the Borrower and its
- -----
Restricted Subsidiaries during such period, excluding those Capital Expenditures
(i) reimbursed by third parties, (ii) in respect of the Bridge Rehabilitation
Project, (iii) relating to Permitted Acquisitions or (iv) in respect of the
Oregon Rail Acquisition.
Consolidated EBITDA. For any fiscal period of the Borrower and its
-------------------
Restricted Subsidiaries, an amount equal to the sum of (a) Consolidated Net
Income for such fiscal period, plus in each case, to the extent deducted in
----
computing Consolidated Net Income and without duplication, (b) Consolidated
Total Interest Expense for such fiscal period, (c) income tax expense for such
fiscal period, and (d) the aggregate amount of depreciation and amortization for
such fiscal period minus (e) to the extent included in computing Consolidated
-----
Net Income, all gains from the sale of assets of the Borrower and its Restricted
Subsidiaries.
Consolidated Funded Debt. As at any date of determination, an amount equal
------------------------
to the aggregate amount of Indebtedness of the Borrower and its Restricted
Subsidiaries, determined on a consolidated basis, related to the
<PAGE>
-6-
borrowing of money or the obtaining of credit (which the parties hereto agree
for the purposes of this definition does not include Indebtedness permitted
under (S)(S)9.1(b), (c), (d), (e), (g), (j) and (l) hereof) whether absolute or
contingent, including, to the extent not included in such Indebtedness, all
Capitalized Leases, the net present value (using a discount rate of 8% per
annum) of all operating leases with a non-cancellable term of longer than one
year and all Indebtedness guaranteed by the Borrower or its Restricted
Subsidiaries.
Consolidated Net Income. The consolidated net income of the Borrower and
-----------------------
its Restricted Subsidiaries, after deduction of all expenses, taxes, and other
proper charges, determined in accordance with generally accepted accounting
principles, after eliminating therefrom all extraordinary nonrecurring items of
income.
Consolidated Total Interest Expense. For any period, the aggregate amount
-----------------------------------
of interest required to be paid or accrued by the Borrower and its Restricted
Subsidiaries during such period on all Indebtedness of the Borrower and its
Restricted Subsidiaries related to the borrowing of money or the obtaining of
credit outstanding during all or any part of such period, whether such interest
was or is required to be reflected as an item of expense or capitalized,
including payments consisting of interest in respect of Capitalized Leases and
including commitment fees, agency fees, facility fees, balance deficiency fees
and similar fees or expenses in connection with the borrowing of money (other
than non-cash interest or fees) solely to the extent that such fees are properly
included as interest expense in accordance with generally accepted accounting
principles.
Conversion Request. A notice given by the Borrower to the Agent of the
------------------
Borrower's election to convert or continue a Loan in accordance with (S)2.7.
Corpus Christi Lease. The Lease Agreement dated as of July 25, 1997
--------------------
between Port of Corpus Christi Authority of Nueces County, Texas, as Lessor and
CCTR as Lessee, with respect to certain railroad property and facilities, in
substantially the form delivered to the Agent on or prior to the date hereof
Credit Agreement. This Second Amended and Restated Revolving Credit
----------------
Agreement, including the Schedules and Exhibits hereto.
CSX. CSX Transportation, Inc., a Virginia corporation.
---
CSX Mortgages. Collectively, the Mortgage and Assignment of Leases, Rents,
-------------
Issues and Profits (New York), dated as of October 7, 1991, from BPR to CSX with
respect to BPR right of way and associated property from BPR's milepost 2.0 near
Buffalo, New York and south to the New York/Pennsylvania state line and the
Mortgage and Assignment of Leases, Rents, Issues and Profits (Pennsylvania),
dated as of October 7, 1991, from BPR to CSX with respect to BPR right of way
and associated property from the New York/Pennsylvania
<PAGE>
-7-
state line south to BPR's mile post 221.0 near Punxsutawney, Pennsylvania and
securing the CSX Remaining Debt.
CSX Security Agreements. Collectively, the Security Agreement
-----------------------
(Pennsylvania) dated as of October 7, 1991 between BPR and CSX and the Security
Agreement (New York) dated as of October 7, 1991 between BPR and CSX.
CSX Remaining Debt. Indebtedness of BPR to CSX under the Promissory Note
------------------
dated as of October 7, 1991, executed by BPR in favor of CSX in the form
delivered to the Agent prior to the Closing Date, in an aggregate outstanding
principal amount not to exceed $8,922,105, or any refinancing or replacement
thereof on terms satisfactory to the Majority Banks.
Dansville. The Dansville and Mount Morris Railroad Company, a New York
---------
corporation.
Dayton. GWI Dayton, Inc., a Delaware corporation.
------
Default. See (S)13.1.
-------
Distribution. The declaration or payment of any dividend on or in respect
------------
of any shares of any class of capital stock or other equity interests of any
Person, other than dividends payable solely in shares of common stock or similar
non-preferred equity interests of such Person; the purchase, redemption, or
other retirement of any shares of any class of capital stock or other equity
interests of any Person, directly or indirectly through a Subsidiary of such
Person or otherwise; the return of capital by any Person to its shareholders or
equity holders as such; or any other distribution on or in respect of any shares
of any class of capital stock or other equity interests of any Person.
Dollar Equivalent. On any date of determination, with respect to an amount
-----------------
denominated in Dollars, such amount of Dollars, and with respect to an amount
denominated in a currency other than Dollars, the amount (as conclusively
ascertained by the Agent absent manifest error) which could be purchased by the
Agent with that amount such currency at the spot rate of exchange quoted by the
Agent in the applicable foreign exchange market at or about 11:00 a.m. (local
time) on the date of determination for the purchase of Dollars with such
currency.
Dollars or $. Dollars in lawful currency of the United States of America.
------- -
Domestic Lending Office. Initially, the office of each Bank designated as
-----------------------
such in Schedule II hereto; thereafter, such other office of such Bank, if any,
-----------
located within the United States that will be making or maintaining Base Rate
Loans.
<PAGE>
-8-
Drawdown Date. The date on which any Loan is made or is to be made, and
-------------
the date on which any Loan is converted or continued in accordance with (S)2.7.
Eligible Assignee. Any of (i) a commercial bank organized under the laws
-----------------
of the United States, or any State thereof or the District of Columbia, and
having total assets in excess of $1,000,000,000; (ii) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof or the District of Columbia, and having a net worth of at
least $100,000,000, calculated in accordance with generally accepted accounting
principles; (iii) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development (the "OECD"), or a political subdivision of any such country, and
having total assets in excess of $1,000,000,000, provided that such bank is
--------
acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (iv) the
central bank of any country which is a member of the OECD; and (v) if, but only
if, any Event of Default has occurred and is continuing, any other bank,
insurance company, commercial finance company or other financial institution or
other Person approved by the Agent, such approval not to be unreasonably
withheld.
Employee Benefit Plan. Any employee benefit plan within the meaning of
---------------------
(S)3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
Environmental Laws. See (S)7.17(a).
------------------
ERISA. The Employee Retirement Income Security Act of 1974.
-----
ERISA Affiliate. Any Person which is treated as a single employer with the
---------------
Borrower under (S)414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
----------------------
Pension Plan within the meaning of (S)4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Eurocurrency Interbank Market. Any lawful recognized market in which
-----------------------------
deposits of Dollars and the relevant Optional Currencies are offered by
international banking units of United States banking institutions and by foreign
banking institutions to each other and in which foreign currency and exchange
operations or eurocurrency funding operations are customarily conducted.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate
-------------------------
Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against
<PAGE>
-9-
"Eurocurrency Liabilities" (as that term is used in Regulation D), if such
liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in the Eurocurrency
Reserve Rate.
Eurodollar Business Day. Any day on which commercial banks are open for
-----------------------
international business (including dealings in Dollar deposits) in London or such
other eurodollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
Eurodollar Lending Office. Initially, the office of each Bank designated
-------------------------
as such in Schedule II hereto; thereafter, such other office of such Bank, if
-----------
any, that shall be making or maintaining Eurodollar Rate Loans.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate
---------------
Loan, the rate of interest equal to (i) the arithmetic average of the rates per
annum for the Reference Bank (rounded upwards to the nearest 1/16 of one
percent) of the rate at which the Reference Bank's Eurodollar Lending Office is
offered Dollar deposits two Eurodollar Business Days prior to the beginning of
such Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations of such Eurodollar Lending Office are
customarily conducted, for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount comparable to the amount
of the Eurodollar Rate Loan of the Reference Bank to which such Interest Period
applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve
Rate, if applicable.
Eurodollar Rate Loans. Loans bearing interest calculated by reference to
---------------------
the Eurodollar Rate.
Event of Default. See (S)13.1.
----------------
Exchange Agreement. The Rolling Stock Acquisition and Exchange Cooperation
------------------
Agreement dated in March 1997, between Leasing and Apus Rail One, Inc., in the
form delivered to the Agent prior to the date hereof.
Federal Funds Effective Rate. For any day, the rate per annum equal to the
----------------------------
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three
funds brokers of recognized standing selected by the Agent.
Fee Letter. See (S)5.1
----------
<PAGE>
-10-
FRA. The United States of America, represented by the Secretary of
---
Transportation acting through the Administrator of Federal Railroad
Administration or the Federal Railroad Administrator's designee.
Fuller Immediate Family. Mortimer B. Fuller, III, his interest in his
-----------------------
father's estate and/or any of his children or grandchildren and any trust or
other Person controlled by, and a majority of the beneficial ownership interest
of which is owned by, any of such individuals, singly or jointly.
Funded Debt to EBITDA Ratio. At any date as of which such ratio shall be
---------------------------
determined, the ratio of (a) the aggregate outstanding amount of Consolidated
Funded Debt on such date to (b) the sum of (i) Consolidated EBITDA for the
period of four consecutive fiscal quarters most recently ended, plus (ii) rental
----
payments made during such period by the Borrower or any of its Restricted
Subsidiaries in respect of operating leases.
generally accepted accounting principles. (i) When used in (S)10, whether
----------------------------------------
directly or indirectly through reference to a capitalized term used therein,
means (A) principles that are consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, in
effect for the fiscal year ended on the Balance Sheet Date, and (B) to the
extent consistent with such principles, the accounting practice of the Borrower
reflected in its financial statements for the year ended on the Balance Sheet
Date, and (ii) when used in general, other than as provided above, means
principles that are (A) consistent with the principles promulgated or adopted by
the Financial Accounting Standards Board and its predecessors, as in effect from
time to time, and (B) consistently applied with past financial statements of the
Borrower adopting the same principles, provided that in each case referred to in
this definition of "generally accepted accounting principles" a certified public
accountant would, insofar as the use of such accounting principles is pertinent,
be in a position to deliver an unqualified opinion (other than a qualification
regarding changes in generally accepted accounting principles) as to financial
statements in which such principles have been properly applied.
GRO. Genesee Rail-One Inc., a Canadian corporation.
---
Guaranteed Pension Plan. Any employee pension benefit plan within the
-----------------------
meaning of (S)3(2) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Guarantors. Each of the Restricted Subsidiaries, including, without
----------
limitation, those Subsidiaries set forth on Schedule I hereto.
----------
Guaranty. The Guaranty made by each of the Guarantors in favor of the
--------
Banks and the Agent pursuant to (S)6 hereof, pursuant to which each Guarantor
<PAGE>
-11-
guaranties to the Banks and the Agent the payment and performance of the
Obligations.
GWI. See preamble.
---
GWIA. Genesee & Wyoming Australia Pty Ltd., an Australian corporation.
----
GWI Canada. GWI Canada, Inc., a Delaware corporation.
----------
Hazardous Substances. See (S)7.17(b).
--------------------
IMR. Illinois & Midland Railroad, Inc., a Delaware corporation.
---
Indebtedness. All obligations, contingent and otherwise, that in
------------
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (i) all debt and similar monetary obligations, whether direct or
indirect; (ii) all liabilities secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (iii) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
Instrument of Adherence (Guaranty). See (S)8.14.
----------------------------------
Interest Payment Date. (i) As to any Base Rate Loan, the last day of the
---------------------
calendar quarter; and (ii) as to any Eurodollar Rate Loan in respect of which
the Interest Period is (A) 3 months or less, the last day of such Interest
Period and (B) more than 3 months, the date that is 3 months from the first day
of such Interest Period and, in addition, the last day of such Interest Period.
Interest Period. With respect to each Loan (i) initially, the period
---------------
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in a Loan Request
(A) for any Base Rate Loan, the last day of the calendar quarter; and (B) for
any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (ii) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Loan and ending on the last day of one of the periods set forth above, as
selected by the Borrower in a Conversion Request; provided that all of the
--------
foregoing provisions relating to Interest Periods are subject to the following:
<PAGE>
-12-
(a) if any Interest Period with respect to a Eurodollar Rate Loan
would otherwise end on a day that is not a Eurodollar Business Day, that
Interest Period shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Eurodollar Business Day;
(b) if any Interest Period with respect to a Base Rate Loan would end
on a day that is not a Business Day, that Interest Period shall end on the
next succeeding Business Day;
(c) if the Borrower shall fail to give notice as provided in (S)2.7,
the Borrower shall be deemed to have requested a conversion of the affected
Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base
Rate Loans as Base Rate Loans on the last day of the then current Interest
Period with respect thereto;
(d) any Interest Period relating to any Eurodollar Rate Loan that
begins on the last Eurodollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Eurodollar
Business Day of a calendar month; and
(e) any Interest Period relating to any Eurodollar Rate Loan that
would otherwise extend beyond the Maturity Date shall end on the Maturity
Date.
Investors. Genesee & Wyoming Investors, Inc., a Delaware corporation.
---------
Investments. All expenditures made and all liabilities incurred
-----------
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (i) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (ii) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(iii) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (iv) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (ii) may be
deducted when paid; and (v) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
<PAGE>
-13-
Issuing Bank. BKB, in its capacity as issuer of Letters of Credit pursuant
------------
to (S)4, or, in the event that BKB is unable to issue a Letter of Credit, any
other Bank selected by the Agent to issue such Letter of Credit with the consent
of the Borrower and such Bank.
Kittanning. Kittanning Equipment Leasing Company, a Pennsylvania
----------
corporation and wholly owned Subsidiary of PSR.
Leasing. GWI Leasing Corporation, a Delaware corporation.
-------
Letter of Credit. See (S)4.1.1.
----------------
Letter of Credit Application. See (S)4.1.1.
----------------------------
Letter of Credit Fee. See (S)4.6.
--------------------
Letter of Credit Obligations. As of any date, the sum of the Maximum
----------------------------
Drawing Amount as of such date and all Unpaid Reimbursement Obligations as of
such date.
Letter of Credit Participation. See (S)4.1.4.
------------------------------
Loan Documents. This Credit Agreement, the Revolving Credit Notes, the
--------------
Letter of Credit Applications, the Letters of Credit, the Guaranty and the Fee
Letter.
Loan Request. See (S)2.6.
------------
Loans. Revolving credit loans made or to be made by the Banks to the
-----
Borrowers pursuant to (S)2.
Majority Banks. As of any date, the Banks holding at least fifty-one
--------------
percent (51%) of the principal amount of the Revolving Credit Notes on such date
(including the unfunded portion of the Commitments); and if no such principal is
outstanding, the Banks whose aggregate Commitment constitutes at least fifty-one
percent (51%) of the Total Commitment.
Management. GWI Rail Management Corporation, a Delaware corporation.
----------
Maturity Date. October 31, 2002.
-------------
Maximum Drawing Amount. The maximum aggregate amount that the
----------------------
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
<PAGE>
-14-
Multiemployer Plan. Any multiemployer plan within the meaning of (S)3(37)
------------------
of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate.
Net Cash Proceeds. With respect to any sale of any assets of the Borrower
-----------------
or any of its Restricted Subsidiaries or the issuance and sale of equity
securities or debt of the Borrower or any of its Restricted Subsidiaries, the
gross consideration received by the Borrower or any of its Restricted
Subsidiaries (in cash) from such sale of equity or debt issuance, net of
commissions, direct sales costs, normal closing adjustments, the amount used to
repay any Indebtedness permitted by (S)9.1 secured by such assets, income taxes
attributable to such sale and professional fees and expenses incurred directly
in connection therewith, to the extent the foregoing are actually paid in
connection with such sale or equity or debt issuance.
Obligations. All indebtedness, obligations and liabilities of the Borrower
-----------
and its Restricted Subsidiaries to any of the Banks and the Agent, individually
or collectively, existing on the date of this Credit Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, arising or incurred under this
Credit Agreement or any of the other Loan Documents or in respect of any of the
Loans made or Reimbursement Obligations incurred or any of the Revolving Credit
Notes, Letter of Credit Applications, Letters of Credit, or other instruments at
any time evidencing any thereof.
Optional Currency. Any currency other than Dollars which is freely
-----------------
convertible into Dollars and which is traded or any recognized Eurocurrency
Interbank Market selected by the Agent in good faith; provided, however, that in
-------- -------
the event the Borrower requests an Optional Currency for a Letter of Credit
consisting of a currency other than Australian dollars or Canadian dollars, the
issuance of such Letter of Credit shall be subject to the consent of the Agent.
Oregon Rail Acquisition. The acquisition by WPR from A&K Railroad
-----------------------
Materials, Inc., a California corporation, of 18 miles of continuous welded rail
and related assets on terms and conditions and subject to documentation
satisfactory to the Agent for an aggregate purchase price not to exceed
$1,840,500.
Original Credit Agreement. See preamble.
-------------------------
outstanding. With respect to the Loans, the aggregate unpaid principal
-----------
thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by (S)4002 of ERISA
----
and any successor entity or entities having similar responsibilities.
Permitted Acquisition(s). See (S)9.3(k).
------------------------
<PAGE>
-15-
Permitted Liens. Liens, security interests and other encumbrances
---------------
permitted by (S)9.2.
Person. Any individual, corporation, limited liability company,
------
partnership, trust, unincorporated association, business, or other legal entity,
and any government or any governmental agency or political subdivision thereof.
Prior Credit Agreement. See preamble.
----------------------
Pro Forma Basis. In connection with any proposed Permitted Acquisition
---------------
after the Closing Date, the calculation of compliance with the financial
covenants described in (S)9.3(k) hereof by the Borrower and its Restricted
Subsidiaries (including the Person to be acquired) with reference to the audited
historical financial results of such Person and the Borrower and its Restricted
Subsidiaries for the applicable Test Period after giving effect on a pro forma
--- -----
basis to such Permitted Acquisition in the manner described in (i), (ii) and
(iii) below; and, following a Permitted Acquisition, the calculation of
compliance with the financial covenants set forth in (S)10 for the fiscal
quarter in which such Permitted Acquisition occurred and each of the three
fiscal quarters immediately following such Permitted Acquisition with reference
to the audited historical financial results of the Person so acquired and the
Borrower and its Restricted Subsidiaries for the applicable Test Period after
giving effect on a pro forma basis to such Permitted Acquisition in the manner
--- -----
described in (i), (ii) and (iii) below, provided, however, that, in each case,
-------- -------
in the event that no historical financial results are available with respect to
the Person or assets to be acquired, such calculations shall be made with
reference to reasonable estimates of such past performance made by the Borrower
based on existing data and other available information, such estimates to be
agreed upon by the Borrower and the Agent and, with respect to Permitted
Acquisitions for which the total consideration therefor exceeds $10,000,000, the
Majority Banks:
(i) all Indebtedness (whether under this Credit Agreement or
otherwise) and any other balance sheet adjustments incurred or made in
connection with the Permitted Acquisition shall be deemed to have been
incurred or made on the first day of the Test Period, and all Indebtedness
of the Person acquired or to be acquired in such Permitted Acquisition
which was or will have been repaid in connection with the consummation of
the Permitted Acquisition shall be deemed to have been repaid concurrently
with the incurrence of the Indebtedness incurred in connection with the
Permitted Acquisition;
(ii) all Indebtedness assumed to have been incurred pursuant to
the preceding clause (i) shall be deemed to have borne interest at the sum
of (a) the arithmetic mean of (x) the Eurodollar Rate for Eurodollar Rate
Loans having an Interest Period of one month in effect on the first day of
the Test Period and (y) the Eurodollar Rate for Eurodollar Rate Loans
having an Interest Period of one month in effect
<PAGE>
-16-
on the last day of the Test Period plus (b) the Applicable Margin then in
----
effect (after giving effect to the Permitted Acquisition on a Pro Forma
--- -----
Basis); and
(iii) other reasonable cost savings, expenses and other income
statement or operating statement adjustments which are attributable to the
change in ownership and/or management resulting from such Permitted
Acquisition as may be approved by the Agent in writing (which approval
shall not be unreasonably withheld) shall be deemed to have been realized
on the first day of the Test Period.
PSR. Pittsburg & Shawmut Railroad, Inc., a Delaware corporation.
---
Purchase Price. With respect to any Permitted Acquisition, all
--------------
consideration payable by the Borrower or any of its Restricted Subsidiaries in
connection with such Permitted Acquisition, including, without limitation, cash
payments, the principal amount of any promissory notes issued by the Borrower or
any of its Restricted Subsidiaries, any amounts payable by the Borrower or any
of its Restricted Subsidiaries in consideration for any non-compete covenant,
deferred purchase price, earn-out or similar payment and the amount of any
Indebtedness assumed by the Borrower or any of its Restricted Subsidiaries.
Rate Adjustment Period. See the definition of Applicable Margin.
----------------------
Real Estate. All real property at any time owned or leased (as lessee or
-----------
sublessee) by the Borrower or any of its Restricted Subsidiaries.
Record. The grid attached to a Revolving Credit Note, or the continuation
------
of such grid, or any other similar record, including computer records,
maintained by any Bank with respect to any Loan referred to in such Revolving
Credit Note.
Reference Bank. BKB.
--------------
Reimbursement Obligation. The Borrower's obligation to reimburse the
------------------------
Issuing Bank and the Banks on account of any drawing under any Letter of Credit
as provided in (S)4.2.
Restricted Payments. In relation to the Borrower and its Restricted
-------------------
Subsidiaries, (a) any Distribution or (b) any payment or prepayment by the
Borrower or its Restricted Subsidiaries to any Affiliate of the Borrower or any
of its Restricted Subsidiaries other than payments to Affiliates for goods and
services in the ordinary course of business on terms equivalent to those
obtainable in arms length transactions.
Restricted Subsidiaries. Any Subsidiary which is not an Unrestricted
-----------------------
Subsidiary. The Borrower shall not have the right to change the status of an
<PAGE>
-17-
Unrestricted Subsidiary to a Restricted Subsidiary unless such Unrestricted
Subsidiary becomes a Guarantor hereunder.
Revolving Credit Notes. See (S)2.4.
----------------------
RSI. Genesee & Wyoming Railroad Services, Inc. (f/k/a Railroad Services,
---
Inc.), a Delaware corporation.
Solvent. See (S)7.5.2.
-------
STB. The Surface Transportation Board (the entity which succeeded to the
---
function and duties of the Interstate Commerce Commission) or any governmental
authority(ies) which succeeds to the function or duties of the Surface
Transportation Board or any portion thereof.
Subsidiary. Any corporation, association, trust, or other business entity
----------
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding Voting Stock.
Switching. GWI Switching Services, L.P., a Texas limited partnership.
---------
Test Period. (a) In connection with the calculation of financial covenant
-----------
compliance on a Pro Forma Basis as required by (S)9.3(k) with respect to any
proposed Permitted Acquisition, the period of four fiscal quarters most recently
ended prior to such Permitted Acquisition, and (b) in connection with the
calculation of the financial covenants set forth in (S)10 hereof following any
Permitted Acquisition, the period of all fiscal quarters (and any portion of a
fiscal quarter) prior to the date of such Permitted Acquisition included in the
calculation of such financial covenant.
Total Commitment. The sum of the Commitments of the Banks, as in effect
----------------
from time to time. On the Closing Date, the Total Commitment shall equal
$65,000,000.
Type. As to any Loan its nature as a Base Rate Loan or a Eurodollar Rate
----
Loan.
Uniform Customs. With respect to any Letter of Credit, the Uniform Customs
---------------
and Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500 or any successor version thereto adopted by the
Issuing Bank in the ordinary course of its business as a letter of credit issuer
and in effect at the time of issuance of such Letter of Credit.
Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which
-------------------------------
the Borrower does not reimburse the Issuing Bank and the Banks on the date
specified in, and in accordance with, (S)4.2.
Unrestricted Subsidiaries. GWIA, GRO and Kittanning.
-------------------------
<PAGE>
-18-
Voting Stock. Stock or similar interests, of any class or classes (however
------------
designated), the holders of which are at the time entitled, as such holders, to
vote for the election of a majority of the directors (or persons performing
similar functions) of the corporation, association, trust or other business
entity involved, whether or not the right so to vote exists by reason of the
happening of a contingency.
Willamette Valley Note. The Installment Note dated as of February 5, 1997
----------------------
between WPR and Valley Development Initiatives providing for a loan from Valley
Development Initiatives in an aggregate principal amount of not more than
$400,000, having an interest rate of five percent (5%) per annum and a term of
ten years, in substantially the form delivered to the Agent and the Banks.
WPR. Willamette & Pacific Railroad, Inc., a New York corporation.
---
1.2 RULES OF INTERPRETATION.
-----------------------
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have the
meanings assigned to them therein, with the term "instrument" being that
defined under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "(S)" refers to that section of this
Credit Agreement unless otherwise indicated.
<PAGE>
-19-
(i) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Credit Agreement as a whole and not
to any particular section or subdivision of this Credit Agreement.
2. THE REVOLVING CREDIT FACILITY.
------------------------------
2.1. Commitment to Lend. Subject to the terms and conditions set
------------------
forth in this Credit Agreement, each of the Banks severally agrees (i) on the
Closing Date, to convert the loans outstanding under the Prior Credit Agreement,
if any, to Loans under this Credit Agreement and (ii) to lend to the Borrower
and the Borrower may borrow, repay, and reborrow from time to time between the
Closing Date and the Maturity Date upon notice by the Borrower to the Agent
given in accordance with ss.2.6, such sums as are requested by the Borrower up
to a maximum aggregate amount outstanding (after giving effect to all amounts
requested) at any one time equal to such Bank's Commitment minus such Bank's
Commitment Percentage of the Dollar Equivalent of the aggregate Letter of Credit
Obligations provided that the sum of the outstanding amount of the Loans (after
giving effect to all amounts requested) plus the Dollar Equivalent of the
aggregate Letter of Credit Obligations shall not at any time exceed the Total
Commitment. The Loans shall be made pro rata in accordance with each Bank's
Commitment Percentage. Each request for a Loan hereunder shall constitute a
representation and warranty by the Borrower that the conditions set forth in
ss.11 and ss.12, in the case of the initial Loans to be made or converted on the
Closing Date, and ss.12, in the case of all other Loans, have been satisfied on
the date of such request.
2.2. Commitment Fees. The Borrower agrees to pay to the Agent for the
---------------
accounts of the Banks in accordance with their respective Commitment Percentages
a commitment fee calculated at the rate per annum equal to the Applicable Margin
with respect to commitment fees multiplied by the average daily amount during
each calendar quarter or portion thereof from the Closing Date to the Maturity
Date by which the Total Commitment minus the Dollar Equivalent of the aggregate
Letter of Credit Obligations exceeds the outstanding amount of Loans during such
calendar quarter. The commitment fee shall be payable quarterly in arrears on
the last day of each calendar quarter for such calendar quarter then ending
commencing on the first such date following the date hereof, with a final
payment on the Maturity Date or any earlier date on which the Commitments shall
terminate.
2.3. Reduction of Total Commitment. The Borrower shall have the right
-----------------------------
at any time and from time to time upon five (5) Business Days prior written
notice to the Agent to reduce by $500,000 or an integral multiple thereof or
terminate entirely the Total Commitment, whereupon the Commitments of the Banks
shall be reduced pro rata in accordance with their respective Commitment
Percentages of the amount specified in such notice or, as the case may be,
terminated. Promptly after receiving any notice of the Borrower delivered
pursuant to this ss.2.3, the Agent will notify the Banks of the substance
thereof. Upon the effective date of any such reduction or termination, the
<PAGE>
-20-
Borrower shall pay to the Agent for the respective accounts of the Banks the
full amount of any commitment fee then accrued on the amount of the reduction.
No reduction or termination of the Commitments may be reinstated.
2.4. The Revolving Credit Notes. The Loans shall be evidenced by
--------------------------
promissory notes of the Borrower in substantially the form of Exhibit A hereto
(each a "Revolving Credit Note"), dated as of the Closing Date (or other such
date on which a Bank may become a party hereto in accordance with ss.19 hereof)
and completed with appropriate insertions. One Revolving Credit Note shall be
payable to the order of each Bank in a principal amount equal to such Bank's
Commitment or, if less, the outstanding amount of all Loans made by such Bank,
plus interest accrued thereon, as set forth below. The Borrower irrevocably
authorizes each Bank to make or cause to be made, at or about the time of the
Drawdown Date of any Loan or at the time of receipt of any payment of principal
on such Bank's Revolving Credit Note, an appropriate notation on such Bank's
Note Record reflecting the making of such Loan or (as the case may be) the
receipt of such payment. The outstanding amount of the Revolving Credit Loans
set forth on such Bank's Note Record shall be prima facie evidence of the
principal amount thereof owing and unpaid to such Bank, but the failure to
record, or any error in so recording, any such amount on such Bank's Note Record
shall not limit or otherwise affect the obligations of the Borrower hereunder or
under any Revolving Credit Note to make payments of principal of or interest on
any Revolving Credit Note when due.
2.5. Interest on Loans. Except as otherwise provided in ss.5.10,
-----------------
(a) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day
of the Interest Period with respect thereto at a rate per annum equal
to the Base Rate plus the Applicable Margin with respect to Base Rate
Loans as in effect from time to time.
(b) Each Eurodollar Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the
last day of the Interest Period with respect thereto at a rate per
annum equal to the Eurodollar Rate determined for such Interest
Period plus the Applicable Margin with respect to Eurodollar Rate
Loans as in effect from time to time.
(c) The Borrower promises to pay interest on each Loan in
arrears on each Interest Payment Date with respect thereto.
2.6. Requests for Loans. The Borrower shall give to the Agent written
------------------
notice in the form of Exhibit B hereto (or telephonic notice confirmed in a
writing in the form of Exhibit B hereto) of each Loan requested hereunder (a
"Loan Request") no less than (i) one (1) Business Day prior to the proposed
Drawdown Date of any Base Rate Loan and (ii) two (2) Eurodollar Business Days
prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each
<PAGE>
-21-
such notice shall specify (A) the principal amount of the Loan requested, (B)
the proposed Drawdown Date of such Loan, (C) the Interest Period for such Loan
and (D) the Type of such Loan. Promptly upon receipt of any such notice, the
Agent shall notify each of the Banks thereof. Each Loan Request shall be
irrevocable and binding on the Borrower and shall obligate the Borrower to
accept the Loan requested from the Banks on the proposed Drawdown Date. Each
Loan Request shall be in a minimum aggregate amount of $500,000 or an integral
multiple thereof.
2.7. Conversion Options.
------------------
2.7.1. Conversion to Different Type of Loan. The Borrower
------------------------------------
may elect from time to time to convert any outstanding Loan to a Loan
of another Type, provided that (i) with respect to any such
conversion of a Loan to a Base Rate Loan, the Borrower shall give the
Agent at least one (1) Business Day prior written notice of such
election; (ii) with respect to any such conversion of a Base Rate
Loan to a Eurodollar Rate Loan, the Borrower shall give the Agent at
least two (2) Eurodollar Business Days prior written notice of such
election; (iii) with respect to any such conversion of a Eurodollar
Rate Loan into a Base Rate Loan, such conversion shall only be made
on the last day of the Interest Period with respect thereto; (iv) no
Base Rate Loan may be converted into a Eurodollar Rate Loan when any
Default or Event of Default has occurred and is continuing; and (v)
no more than five (5) Eurodollar Rate Loans having different Interest
Periods may be outstanding at any time. On the date on which such
conversion is being made each Bank shall take such action as is
necessary to transfer its Commitment Percentage of such Loans to its
Domestic Lending Office or its Eurodollar Lending Office, as the case
may be. All or any part of outstanding Loans of any Type may be
converted into a Loan of another Type as provided herein, provided
that any partial conversion shall be in an aggregate principal amount
of $500,000 or a whole multiple thereof. Each Conversion Request
relating to the conversion of a Loan to a Eurodollar Rate Loan shall
be irrevocable by the Borrower.
2.7.2. Continuation of Type of Loan. Any Loan of any Type
----------------------------
may be continued as a Revolving Credit Loan of the same Type upon the
expiration of an Interest Period with respect thereto by compliance
by the Borrower with the notice provisions contained in ss.2.7.1;
provided that no Eurodollar Rate Loan may be continued as such when
any Default or Event of Default has occurred and is continuing, but
shall be automatically converted to a Base Rate Loan on the last day
of the first Interest Period relating thereto ending during the
continuance of any Default or Event of Default of which officers of
the Agent active upon the Borrower's account have actual knowledge.
In the event that the Borrower fails to provide any such notice with
respect to the continuation of any Eurodollar Rate Loan as such, then
such Eurodollar Rate Loan shall be automatically converted to a Base
Rate Loan on the last day of
<PAGE>
-22-
the first Interest Period relating thereto. The Agent shall notify
the Banks promptly when any such automatic conversion contemplated by
this ss.2.7 is scheduled to occur.
2.7.3. Eurodollar Rate Loans. Any conversion to or from
---------------------
Eurodollar Rate Loans shall be in such amounts and be made pursuant
to such elections so that, after giving effect thereto, the aggregate
principal amount of all Eurodollar Rate Loans having the same
Interest Period shall not be less than $500,000 or a whole multiple
of $500,000 in excess thereof.
2.8. Funds for Loans.
---------------
2.8.1. Funding Procedures. Not later than 1:00 p.m. (Boston
------------------
time) on the proposed Drawdown Date of any Loans, each of the Banks
will make available to the Agent, at its Head Office, in immediately
available funds, the amount of such Bank's Commitment Percentage of
the amount of the requested Loans. Upon receipt from each Bank of
such amount, and upon receipt of the documents required by ss.ss.11
and 12 and the satisfaction of the other conditions set forth
therein, to the extent applicable, the Agent will make available to
the Borrower the aggregate amount of such Loans made available to the
Agent by the Banks. The failure or refusal of any Bank to make
available to the Agent at the aforesaid time and place on any
Drawdown Date the amount of its Commitment Percentage of the
requested Loans shall not relieve any other Bank from its several
obligation hereunder to make available to the Agent the amount of
such other Bank's Commitment Percentage of any requested Loans. In
the event that the Agent becomes aware of any Bank's failure to make
available the amount of its Commitment Percentage of any requested
Loan, the Agent shall notify the Borrower of the identity of such
Bank and the amount such Bank has not made available to the Agent.
2.8.2. Advances by Agent. The Agent may, unless notified to
-----------------
the contrary by any Bank prior to a Drawdown Date, assume that such
Bank has made available to the Agent on such Drawdown Date the amount
of such Bank's Commitment Percentage of the Loans to be made on such
Drawdown Date, and the Agent may (but it shall not be required to),
in reliance upon such assumption, make available to the Borrower a
corresponding amount. If any Bank makes available to the Agent such
amount on a date after such Drawdown Date, such Bank shall pay to the
Agent on demand an amount equal to (i) the average computed for the
period referred to in clause (iii) below, of the Federal Funds
Effective Rate, times (ii) the amount of such Bank's Commitment
Percentage of such Loans, times (iii) a fraction, the numerator of
which is the number of days that elapse from and including such
Drawdown Date to the date on which the amount of such Bank's
Commitment Percentage of such Loans shall become immediately
available to the Agent, and the
<PAGE>
-23-
denominator of which is 360. A statement of the Agent submitted to
such Bank with respect to any amounts owing under this paragraph
shall be prima facie evidence of the amount due and owing to the
Agent by such Bank. If the amount of such Bank's Commitment
Percentage of such Loans is not made available to the Agent by such
Bank within three (3) Business Days following such Drawdown Date, the
Agent shall be entitled to recover such amount from the Borrower on
demand, with interest thereon at the rate per annum applicable to the
Loans made on such Drawdown Date.
3. MANDATORY PREPAYMENT OF LOANS.
-----------------------------
3.1. Maturity of Loans. The Borrower promises to pay on the Maturity
-----------------
Date, and there shall become absolutely due and payable on the Maturity Date,
all of the Loans outstanding on such date, together with any and all accrued and
unpaid interest thereon.
3.2. Mandatory Payments of Loans.
---------------------------
3.2.1. Mandatory Repayments of Loans. If at any time the
-----------------------------
sum of the outstanding amount of the Loans and the Dollar Equivalent
of the aggregate Letter of Credit Obligations exceeds the Total
Commitment, then the Borrower shall immediately pay the amount of
such excess to the Agent for the respective accounts of the Banks for
application in the order prescribed in ss.3.2.5.
3.2.2. Mandatory Prepayments from Asset Sales. The Borrower
--------------------------------------
shall (a) concurrently with each delivery of its Compliance
Certificate pursuant to ss.8.4(c) hereof, deliver to the Agent and
the Banks a statement certified by the principal financial or
accounting officer of the Borrower setting forth (i) the aggregate
gross consideration for all sales of any of its or its Restricted
Subsidiaries' assets or group of related assets (other than assets
sold in the ordinary course of business) during the most recently
ended fiscal quarter where such asset sale is either permitted
pursuant to ss.9.5.2 or is previously consented to in writing by the
Majority Banks and (ii) in reasonable detail, a computation of the
aggregate Net Cash Proceeds from such assets sales and the deductions
taken to arrive at such Net Cash Proceeds and (b) within two (2)
Business Days of delivery of the statement referred to in clause (a)
hereof, prepay the Loans in an amount equal to the amount by which
the aggregate amount of such Net Cash Proceeds exceeds $6,500,000
during such fiscal year.
3.2.3. Mandatory Prepayments from New Equity. In the event
-------------------------------------
that the Borrower shall after the Closing Date sell or issue any
shares of its stock, options (other than stock options awarded to
employees and directors pursuant to incentive compensation plans
operated by the Borrower involving not more than 15% of the common
<PAGE>
-24-
stock of the Borrower) or warrants for the purchase of its stock or
other equity or equity instruments, then as soon as practicable and
in any event within thirty (30) days after the sale of such new
equity, the Borrower shall prepay the Loans in an amount equal to one
hundred percent (100%) of the Net Cash Proceeds to the Borrower of
such sale or issuance of new equity.
3.2.4. Mandatory Prepayments from Debt Offerings. In the
-----------------------------------------
event that the Borrower or any of its Restricted Subsidiaries shall
after the Closing Date incur any Indebtedness for borrowed money not
otherwise permitted under ss.9.1 hereof where the incurrence of such
Indebtedness is previously consented to in writing by the Majority
Banks, then simultaneously with receipt by the Borrower or such
Restricted Subsidiary of the Net Cash Proceeds of such debt issuance,
the Borrower shall prepay the Loans in an amount equal to the Net
Cash Proceeds of such debt issuance.
3.2.5. Application of Proceeds. All mandatory prepayments
-----------------------
of the Loans pursuant to this ss.3.2 shall be applied first, to any
Unpaid Reimbursement Obligations; second to the Loans; and third, to
provide to the Agent cash collateral for Reimbursement Obligations as
contemplated by ss.4.2(b) and (c). Each payment of any Unpaid
Reimbursement Obligations or prepayment of Loans shall be allocated
among the Banks, in proportion, as nearly as practicable, to each
Reimbursement Obligation or (as the case may be) the respective
unpaid principal amount of each Bank's Revolving Credit Note, with
adjustments to the extent practicable to equalize any prior payments
or repayments not exactly in proportion. In addition, the Total
Commitment shall be permanently reduced by the aggregate amount of
all mandatory repayments (other than repayments pursuant to
ss.3.2.1). No amount repaid pursuant to this ss.3.2 with respect to
the Loans may be reborrowed.
3.3. Optional Prepayments of Loans. The Borrower shall have the
-----------------------------
right, at its election, to repay the outstanding amount of the Loans, as a whole
or in part, at any time without penalty or premium, provided that any full or
partial prepayment of the outstanding amount of any Eurodollar Rate Loans
pursuant to this ss.3.3 may be made only on the last day of the Interest Period
relating thereto. The Borrower shall give the Agent, no later than 10:00 a.m.,
Boston time, at least one (1) Business Day prior written notice of any proposed
prepayment pursuant to this ss.3.3 of Base Rate Loans, and two (2) Eurodollar
Business Days notice of any proposed prepayment pursuant to this ss.3.3 of
Eurodollar Rate Loans, in each case specifying the proposed date of prepayment
of Loans and the principal amount to be prepaid. Each such partial prepayment of
the Loans shall be in an integral multiple of $500,000 and shall be applied by
the Agent, in the absence of instruction by the Borrower, first to the principal
of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each
partial prepayment shall be allocated among the Banks, in proportion, as nearly
as practicable, to the respective unpaid principal amount of each Bank's
<PAGE>
-25-
Revolving Credit Note, with adjustments to the extent practicable to equalize
any prior repayments not exactly in proportion.
4. LETTERS OF CREDIT.
-----------------
4.1. Letter of Credit Commitments.
----------------------------
4.1.1. Commitment to Issue Letters of Credit. Subject to
-------------------------------------
the terms and conditions hereof and the execution and delivery by the
Borrower of a letter of credit application on the Issuing Bank's
customary form (a "Letter of Credit Application"), the Issuing Bank
on behalf of the Banks and in reliance upon the agreement of the
Banks set forth in ss.4.1.4 and upon the representations and
warranties of the Borrower contained herein, agrees, in its
individual capacity, to issue, extend and renew for the account of
the Borrower one or more standby or documentary letters of credit
(individually, a "Letter of Credit"), denominated in Dollars or any
Optional Currency in such form as may be requested from time to time
by the Borrower and agreed to by the Issuing Bank; provided, however,
that, after giving effect to such request, (a) the Dollar Equivalent
of the outstanding Letter of Credit Obligations does not exceed
$10,000,000 and (b) the sum of (i) the Dollar Equivalent of the
outstanding Letter of Credit Obligations and (ii) the amount of all
Loans outstanding shall not exceed the Total Commitment.
Notwithstanding the foregoing, the Issuing Bank shall have no
obligation to issue any Letter of Credit to support or secure any
Indebtedness of the Borrower or any of its Subsidiaries to the extent
that such Indebtedness was incurred prior to the proposed issuance
date of such Letter of Credit, unless in any such case the Borrower
demonstrates to the satisfaction of the Issuing Bank that (x) such
prior incurred Indebtedness was then fully secured by a prior
perfected and unavoidable security interest in collateral provided by
the Borrower or such Subsidiary to the proposed beneficiary of such
Letter of Credit or (y) such prior incurred Indebtedness was then
secured or supported by a letter of credit issued for the account of
the Borrower or such Subsidiary and the reimbursement obligation with
respect to such letter of credit was fully secured by a prior
perfected and unavoidable security interest in collateral provided to
the issuer of such letter of credit by the Borrower or such
Subsidiary.
4.1.2. Letter of Credit Applications. Each Letter of Credit
-----------------------------
Application shall be completed to the satisfaction of the Issuing
Bank. In the event that any provision of any Letter of Credit
Application shall be inconsistent with any provision of this Credit
Agreement, then the provisions of this Credit Agreement shall, to the
extent of any such inconsistency, govern.
4.1.3. Terms of Letters of Credit. Each Letter of Credit
--------------------------
issued, extended or renewed hereunder shall, among other things, (i)
provide for the payment of sight drafts for honor thereunder when
presented in
<PAGE>
-26-
accordance with the terms thereof and when accompanied by the
documents described therein, (ii) subject to clause (iii) hereof,
shall have a term of not more than one (1) year from the date of
issuance, extension or renewal thereof and (iii) have an expiry date
no later than the date which is fourteen (14) days (or, if the Letter
of Credit is confirmed by a confirmer or otherwise provides for one
or more nominated persons, forty-five (45) days) prior to the
Maturity Date. Each Letter of Credit so issued, extended or renewed
shall be subject to the Uniform Customs.
4.1.4. Reimbursement Obligations of Banks. Each Bank
----------------------------------
severally agrees that it shall be absolutely liable, without regard
to the occurrence of any Default or Event of Default or any other
condition precedent whatsoever, to the extent of such Bank's
Commitment Percentage, to reimburse the Issuing Bank on demand for
the amount of each draft paid by the Issuing Bank under each Letter
of Credit to the extent that such amount is not reimbursed by the
Borrower pursuant to ss.4.2 (such agreement for a Bank being called
herein the "Letter of Credit Participation" of such Bank). Without
limiting the foregoing, each Bank's obligation to purchase Letter of
Credit Participations shall be absolute and unconditional and shall
not be affected by any circumstance, including (i) any set-off,
counterclaim, recoupment, defense or other right which such Bank may
have against the Agent, the Issuing Bank, the Borrower or any other
Person for any reason whatsoever; (ii) the occurrence and
continuation of any Default or Event of Default; (iii) any adverse
change in the condition (financial or otherwise) of the Borrower, any
of its Subsidiaries or any other Bank; (iv) any breach of any of the
Loan Documents by the Borrower, any of its Subsidiaries or any other
Bank; or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
4.1.5. Participations of Banks. Each such payment made by a
-----------------------
Bank shall be treated as the purchase by such Bank of a participating
interest in the Borrower's Reimbursement Obligation under ss.4.2 in
an amount equal to such payment. Each Bank shall share in accordance
with its participating interest in any interest which accrues
pursuant to ss.4.2.
4.2. Reimbursement Obligation of the Borrower. In order to induce the
----------------------------------------
Issuing Bank to issue, extend and renew each Letter of Credit and the Banks to
participate therein, the Borrower hereby agrees to reimburse or pay to the
Agent, for the account of the Issuing Bank or (as the case may be) the Banks,
with respect to each Letter of Credit issued, extended or renewed by the Issuing
Bank hereunder,
(a) except as otherwise expressly provided in ss.4.2(b) and
(c), on each date that any draft presented under such Letter of
Credit is honored by the Agent, or the Agent otherwise makes a
payment with respect thereto, (i) the Dollar Equivalent of the amount
paid by the Agent under
<PAGE>
-27-
or with respect to such Letter of Credit, and (ii) the Dollar
Equivalent of the amount of any taxes, fees, charges or other costs
and expenses whatsoever incurred by the Agent or any Bank in
connection with any payment made by the Agent or any Bank under, or
with respect to, such Letter of Credit,
(b) upon the reduction (but not termination) of the Total
Commitment to an amount less than the Dollar Equivalent of the
Maximum Drawing Amount, an amount equal to such difference, which
amount shall be held by the Agent for the benefit of the Banks and
the Issuing Bank as cash collateral for all Reimbursement
Obligations, and
(c) upon the termination of the Total Commitment, or the
acceleration of the Reimbursement Obligations with respect to all
Letters of Credit in accordance with ss.13, an amount equal to the
Dollar Equivalent of the then Maximum Drawing Amount on all Letters
of Credit, which amount shall be held by the Agent for the benefit of
the Banks and the Agent as cash collateral for all Reimbursement
Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in
Dollars in immediately available funds. Interest on any and all amounts
remaining unpaid by the Borrower under this ss.4.2 at any time from the date
such amounts become due and payable (whether as stated in this ss.4.2, by
acceleration or otherwise) until payment in full (whether before or after
judgment) shall be payable to the Agent on demand at the rate specified in
ss.5.10 for overdue principal on the Loans.
4.3. Letter of Credit Payments. If any draft shall be presented or
-------------------------
other demand for payment shall be made under any Letter of Credit, the Issuing
Bank shall notify the Borrower of the date and amount of the draft presented or
demand for payment and of the date and time when it expects to pay such draft or
honor such demand for payment. If the Borrower fails to reimburse the Issuing
Bank as provided in ss.4.2 on or before the date that such draft is paid or
other payment is made by the Issuing Bank, the Issuing Bank shall promptly
thereafter notify the Banks of the amount of any such Unpaid Reimbursement
Obligation and shall specify such amount in Dollars (based upon the actual
exchange rate at which the Issuing Bank anticipates being able to obtain the
applicable Optional Currency on the date payment is to be made by the Banks,
with any excess payment being refunded to the Banks and any deficiency being
payable by the Banks) required from each of the Banks. No later than 3:00 p.m.
(Boston time) on the Business Day next following the receipt of such notice,
each Bank shall make available to the Agent, at its Head Office, in immediately
available funds, such Bank's Commitment Percentage of such Unpaid Reimbursement
Obligation, together with an amount equal to (i) the average, computed for the
period referred to in clause (iii) below, of the Federal Funds Effective Rate,
times (ii) the amount equal to such Bank's Commitment Percentage of such Unpaid
Reimbursement Obligation, times (iii) a fraction, the
-----
<PAGE>
-28-
numerator of which is the number of days that elapse from and including the date
the Issuing Bank paid the draft presented for honor or otherwise made payment to
the date on which such Bank's Commitment Percentage of such Unpaid Reimbursement
Obligation shall become immediately available to the Agent, and the denominator
of which is 360. The responsibility of the Issuing Bank to the Borrower and the
Banks shall be only to determine that the documents (including each draft)
delivered under each Letter of Credit in connection with such presentment shall
be in conformity in all material respects with such Letter of Credit. From and
after such purchase of the applicable Letter of Credit Participations, such
Unpaid Reimbursement Obligations shall be deemed to have been converted into
Base Rate Loans made by the Banks, and all amounts from time to time accruing,
and all amounts from time to time payable, on account of such Unpaid
Reimbursement Obligations shall be payable in Dollars as if such Letter of
Credit had originally been issued in Dollars.
4.4. Obligations Absolute. The Borrower's obligations under this ss.4
--------------------
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Issuing Bank, the Agent, any
Bank or any beneficiary of a Letter of Credit. The Borrower further agrees with
the Issuing Bank and the Banks that the Issuing Bank and the Banks shall not be
responsible for, and the Borrower's Reimbursement Obligations under ss.4.2 shall
not be affected by, among other things, the validity or genuineness of documents
or of any endorsements thereon, even if such documents should in fact prove to
be in any or all respects invalid, fraudulent or forged, or any dispute between
or among the Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of the Borrower against the beneficiary of any
Letter of Credit or any such transferee. The Issuing Bank and the Banks shall
not be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit.
4.5. Reliance by Issuer. To the extent not inconsistent with ss.4.4,
------------------
the Issuing Bank shall be entitled to rely, and shall be fully protected in
relying upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Issuing Bank. The Issuing Bank shall be fully
justified in failing or refusing to take any action under this Agreement unless
it shall first have received such advice or concurrence of the Majority Banks as
it reasonably deems appropriate or it shall first be indemnified to its
reasonable satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Issuing Bank shall in all cases be fully protected in acting, or in
refraining from
<PAGE>
-29-
acting, under this Agreement in accordance with a request of the Majority Banks,
and such request and any action taken or failure to act pursuant thereto shall
be binding upon the Banks and all future holders of the Revolving Credit Notes
or of a Letter of Credit Participation.
4.6. Letter of Credit Fee. The Borrower shall, on the date of
---------------------
issuance or any extension or renewal of any Letter of Credit and at such other
time or times as such charges are customarily made by the Issuing Bank, pay a
fee (in each case, a "Letter of Credit Fee") to the Agent in respect of each
Letter of Credit at a rate per annum equal to the Dollar Equivalent of the face
amount of such Letter of Credit multiplied by the Applicable Margin with respect
to Letters of Credit. Such Letter of Credit Fee shall be allocated pro rata
(according to the applicable Commitment Percentages) to each Bank. In addition,
the Borrower shall pay to the Agent, for its own account or the account of the
Issuing Bank, (i) a fee at a rate per annum equal to the Dollar Equivalent of
the Maximum Drawing Amount multiplied by one-tenth of one percent (0.10%), such
fee to be payable quarterly in arrears on the last Business Day of each calendar
quarter for such calendar quarter then ending and (ii) with respect to
documentary letters of credit, standard issuance, extension, renewal,
processing, negotiating, amendment and administration fees, as determined in
accordance with the Issuing Bank's or the Agent's customary fees and charges for
similar facilities.
5. CERTAIN GENERAL PROVISIONS.
--------------------------
5.1. Agent's Fees. The Borrower agrees to pay from time to time to
------------
the Agent, for its own account and the account of BancBoston Securities Inc.
such fees (collectively, the "Agent's Fees") as are set forth in the fee letter
dated as of the date hereof among the Agent, BancBoston Securities Inc. and the
Borrower.
5.2. Funds for Payments.
------------------
5.2.1. Payments to Agent. The Agent shall debit an account
-----------------
of the Borrower with the Agent for all (a) interest payments when due
as provided in ss.2.5 with respect to the Revolving Credit Notes or
otherwise due hereunder, (b) commitment fees when due as provided in
ss.2.2, and (c) Letter of Credit Fees when due as provided in ss.4.6.
The failure of the Agent to debit such account as provided herein
with respect to any such payments shall not constitute a waiver of
any payment due hereunder. The Agent shall notify the Borrower by
telephone or telecopy on or prior to the date of each (i) interest
payment as to the amount of interest due to the Banks on such
interest payment date, (ii) commitment fee payment as to the amount
of the commitment fee due to the Banks on such commitment fee payment
date, and (iii) Letter of Credit Fee payment as to the amount of the
Letter of Credit Fee due to the Issuing Bank and the Banks on such
Letter of Credit Fee payment date. All payments of principal,
Reimbursement Obligations and any other amounts due hereunder or
under any of the other Loan Documents shall be made to
<PAGE>
-30-
the Agent, for the respective accounts of the Banks, the Issuing Bank
and the Agent, at the Agent's Head Office or at such other location
in the Boston, Massachusetts, area that the Agent may from time to
time designate, in each case in immediately available funds.
5.2.2. No Offset, etc. All payments by the Borrower
---------------
hereunder and under any of the other Loan Documents shall be made
without setoff or counterclaim and free and clear of and without
deduction for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make
such deduction or withholding. If any such obligation is imposed upon
the Borrower with respect to any amount payable by it hereunder or
under any of the other Loan Documents, the Borrower will pay to the
Agent, for the account of the Banks, the Issuing Bank or (as the case
may be) the Agent, on the date on which such amount is due and
payable hereunder or under such other Loan Document, such additional
amount in Dollars as shall be necessary to enable the Banks or the
Agent to receive the same net amount which the Banks or the Agent
would have received on such due date had no such obligation been
imposed upon the Borrower. The Borrower will deliver promptly to the
Agent certificates or other valid vouchers for all taxes or other
charges deducted from or paid with respect to payments made by the
Borrower hereunder or under such other Loan Document.
5.2.3. Currency Matters.
----------------
5.2.3.1. Currency of Account. (a) Dollars are the
--------------------
currency of account and payment for each and every sum at
any time due from the Borrower hereunder; provided that:
(i) each payment in respect of costs, expenses
and indemnities shall be made in the currency in which the
same were incurred; and
(ii) any amount expressed to be payable in a
currency other than Dollars shall be paid in that other
currency.
(b) No payment to the Agent, the Issuing Bank or
any Bank (whether under any judgment or court order or
otherwise) shall discharge the obligation or liability in
respect of which it was made unless and until the Agent,
the Issuing Bank or such Bank shall have received payment
in full in the currency in which such obligation or
liability was incurred, and to the extent that the amount
of any such payment shall, on actual conversion into such
currency, fall short of such obligation or liability actual
or contingent expressed in that currency, the Borrower
shall
<PAGE>
-31-
indemnify and hold harmless the Agent, the Issuing Bank or
such Bank, as the case may be, with respect to the amount
of the shortfall.
5.2.3.2. Currency Fluctuations.
---------------------
(a) Not later than 1:00 p.m. (Boston time) on the
last Business Day of each calendar month (the "Calculation
Date"), the Agent shall determine the Dollar Equivalent as
of such date. The Dollar Equivalent so determined shall
become effective on the first Business Day immediately
following such determination (a "Reset Date") and shall
remain effective until the next succeeding Reset Date.
(b) If, on any Reset Date and on the Maturity
Date, the aggregate outstanding amount (expressed in
Dollars) of all Loans and Letter of Credit Obligations
exceeds the Total Commitment by more than $100,000, then
(i) the Agent shall give notice thereof to the Borrower and
the Banks and (ii) within two (2) Business Days thereafter,
the Borrower shall repay or prepay the Loans in accordance
with this Agreement in an aggregate principal amount such
that, after giving effect thereto, the aggregate
outstanding amount (expressed in Dollars) of all Loans and
Letter of Credit Obligations no longer exceeds the Total
Commitment (expressed in Dollars).
(c) Without limiting subsection ss.5.2.3.2(b),
if, on any day prior to the Maturity Date, the aggregate
outstanding amount (expressed in Dollars) of all Loans and
Letter of Obligations exceeds the Total Commitment by five
percent (5%) or more, then (i) the Agent shall give notice
thereof to the Borrower and the Banks and (ii) within two
(2) Business Days thereafter, the Borrower shall repay or
prepay the Loans in accordance with this Agreement in an
aggregate principal amount such that, after giving effect
thereto, the aggregate outstanding amount (expressed in
Dollars) of all Loans and Letter of Credit Obligations no
longer exceeds the Total Commitment (expressed in Dollars).
Nothing set forth in this ss.5.2.3.2 shall be construed to
require the Agent to calculate daily compliance under this
ss.5.2.3.2 unless expressly requested to do so by a Bank.
(d) If on any Reset Date, the aggregate
outstanding Letter of Credit Obligations (expressed in
Dollars) exceeds the Letter of Credit sublimit set forth in
ss.4.1 (expressed in Dollars) by more than five percent
(5%), then the Borrower shall immediately upon demand
provide cash collateral to the Agent such that, after
giving effect thereto, the aggregate outstanding Letter of
Credit
<PAGE>
-32-
Obligations (expressed in Dollars) no longer exceed the
Letter of Credit sublimit set forth in ss.4.1.
5.3. Computations. All computations of interest on Eurodollar Rate
------------
Loans and of commitment fees, Letter of Credit Fees or other fees shall, unless
otherwise expressly provided herein, be based on a 360-day year and paid for the
actual number of days elapsed. All computations of interest with respect to Base
Rate Loans shall be based on a 365-day or 366-day year, as the case may be, and
paid for the actual number of days elapsed. Except as otherwise provided in the
definition of the term "Interest Period" with respect to Eurodollar Rate Loans,
whenever a payment hereunder or under any of the other Loan Documents becomes
due on a day that is not a Business Day, the due date for such payment shall be
extended to the next succeeding Business Day, and interest shall accrue during
such extension. The outstanding amount of the Loans as reflected on the Note
Records from time to time shall be considered correct and binding on the
Borrower unless within five (5) Business Days after receipt of any notice by the
Agent or any of the Banks of such outstanding amount, the Agent or such Bank
shall notify the Borrower to the contrary.
5.4. Inability to Determine Eurodollar Rate. In the event, prior to
--------------------------------------
the commencement of any Interest Period relating to any Eurodollar Rate Loan,
the Agent shall determine that adequate and reasonable methods do not exist for
ascertaining the Eurodollar Rate that would otherwise determine the rate of
interest to be applicable to any Eurodollar Rate Loan during any Interest
Period, the Agent shall forthwith give notice of such determination (which shall
be conclusive and binding on the Borrower and the Banks) to the Borrower and the
Banks. In such event (i) any Loan Request or Conversion Request with respect to
Eurodollar Rate Loans shall be automatically withdrawn and shall be deemed a
request for Base Rate Loans, (ii) each Eurodollar Rate Loan will automatically,
on the last day of the then current Interest Period relating thereto, become a
Base Rate Loan, and (iii) the obligations of the Banks to make Eurodollar Rate
Loans shall be suspended until the Agent determines that the circumstances
giving rise to such suspension no longer exist, whereupon the Agent shall so
notify the Borrower and the Banks.
5.5. Illegality. Notwithstanding any other provisions herein, if any
----------
present or future law, regulation, treaty or directive or the interpretation or
application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Borrower and the other Banks and thereupon (i) the
commitment of such Bank to make Eurodollar Rate Loans or convert Base Rate Loans
to Eurodollar Rate Loans shall forthwith be suspended and (ii) such Bank's Loans
then outstanding as Eurodollar Rate Loans, if any, shall be converted
automatically to Base Rate Loans on the last day of each Interest Period
applicable to such Eurodollar Rate Loans or within such earlier period as may be
required by law. The Borrower hereby agrees promptly to pay the Agent for the
account of such Bank, upon demand by such
<PAGE>
-33-
Bank, any additional amounts necessary to compensate such Bank for any costs
incurred by such Bank in making any conversion in accordance with this ss.5.5,
including any interest or fees payable by such Bank to lenders of funds obtained
by it in order to make or maintain its Eurodollar Rate Loans hereunder.
5.6. Additional Costs, etc. If any present or future applicable law,
---------------------
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank, the Issuing Bank or the Agent by any central bank
or other fiscal, monetary or other authority (whether or not having the force of
law), shall:
(a) subject any Bank, the Issuing Bank or the Agent to any
tax, levy, impost, duty, charge, fee, deduction or withholding of any
nature with respect to this Credit Agreement, the other Loan
Documents, any Letters of Credit, such Bank's Commitment or the Loans
(other than taxes based upon or measured by the income or profits of
such Bank, the Issuing Bank or the Agent), or
(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to any Bank of the
principal of or the interest on any Loans or any other amounts
payable to any Bank, the Issuing Bank or the Agent under this Credit
Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to
the extent specifically provided for elsewhere in this Credit
Agreement) any special deposit, reserve, assessment, liquidity,
capital adequacy or other similar requirements (whether or not having
the force of law) against assets held by, or deposits in or for the
account of, or loans by, or letters of credit issued by, or
commitments of an office of any Bank, or the Issuing Bank or
(d) impose on any Bank, the Issuing Bank or the Agent any
other conditions or requirements with respect to this Credit
Agreement, the other Loan Documents, any Letters of Credit, the
Loans, such Bank's Commitment, or any class of loans, letters of
credit or commitments of which any of the Loans or such Bank's
Commitment forms a part, and the result of any of the foregoing is
(i) to increase the cost to any Bank, or the
Issuing Bank of making, funding, issuing, renewing,
extending or maintaining any of the Loans or such Bank's
Commitment or any Letter of Credit, or
<PAGE>
-34-
(ii) to reduce the amount of principal, interest,
Reimbursement Obligation or other amount payable to such
Bank, the Issuing Bank or the Agent hereunder on account of
such Bank's Commitment, any Letter of Credit or any of the
Loans, or
(iii) to require such Bank, the Issuing Bank or
the Agent to make any payment or to forego any interest or
Reimbursement Obligation or other sum payable hereunder,
the amount of which payment or foregone interest or
Reimbursement Obligation or other sum is calculated by
reference to the gross amount of any sum receivable or
deemed received by such Bank, the Issuing Bank or the Agent
from the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such Bank,
the Issuing Bank or (as the case may be) the Agent at any time and from time to
time and as often as the occasion therefor may arise, pay to such Bank, the
Issuing Bank or the Agent such additional amounts as will be sufficient to
compensate such Bank, the Issuing Bank or the Agent for such additional cost,
reduction, payment or foregone interest or Reimbursement Obligation or other
sum.
5.7. Capital Adequacy. If after the date hereof any Bank or the Agent
----------------
determines that (i) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (ii) compliance by such Bank or the
Agent or any corporation controlling such Bank or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the
effect of reducing the return on such Bank's or the Agent's commitment with
respect to any Loans to a level below that which such Bank or the Agent could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's or the Agent's then existing policies with respect to
capital adequacy and assuming full utilization of such entity's capital) by any
amount deemed by such Bank or (as the case may be) the Agent to be material,
then such Bank or the Agent may notify the Borrower of such fact. To the extent
that the amount of such reduction in the return on capital is not reflected in
the Base Rate, the Borrower and such Bank shall thereafter attempt to negotiate
in good faith, within thirty (30) days of the day on which the Borrower receives
such notice, an adjustment payable hereunder that will adequately compensate
such Bank in light of these circumstances. If the Borrower and such Bank are
unable to agree to such adjustment within thirty (30) days of the date on which
the Borrower receives such notice, then commencing on the date of such notice
(but not earlier than the effective date of any such increased capital
requirement), the fees payable hereunder shall increase by an amount that will,
in such Bank's reasonable determination, provide adequate
<PAGE>
-35-
compensation. Each Bank shall allocate such cost increases among its customers
in good faith and on an equitable basis.
5.8. Certificate. A certificate setting forth any additional amounts
-----------
payable pursuant to ss.ss.5.6 or 5.7 and a brief explanation of such amounts
which are due, submitted by any Bank, the Issuing Bank or the Agent to the
Borrower, shall be conclusive, absent manifest error, that such amounts are due
and owing.
5.9. Indemnity. The Borrower agrees to indemnify each Bank and to
---------
hold each Bank harmless from and against any loss, cost or expense (including
loss of anticipated profits) that such Bank may sustain or incur as a
consequence of (i) default by the Borrower in payment of the principal amount of
or any interest on any Eurodollar Rate Loans as and when due and payable,
including any such loss or expense arising from interest or fees payable by such
Bank to lenders of funds obtained by it in order to maintain its Eurodollar Rate
Loans, (ii) default by the Borrower in making a borrowing or conversion after
the Borrower has given (or is deemed to have given) a Loan Request or a
Conversion Request relating thereto in accordance with ss.2.6 or ss.2.7 or (iii)
the making of any payment of a Eurodollar Rate Loan or the making of any
conversion of any such Loan to a Base Rate Loan on a day that is not the last
day of the applicable Interest Period with respect thereto, including interest
or fees payable by such Bank to lenders of funds obtained by it in order to
maintain any such Loans.
5.10. Interest After Default.
----------------------
5.10.1. Overdue Amounts. During the continuance of an Event
---------------
of Default, overdue principal and (to the extent permitted by
applicable law) interest on the Loans and all other overdue amounts
payable hereunder or under any of the other Loan Documents shall bear
interest compounded monthly and payable on demand at a rate per annum
equal to three percent (3%) above the Base Rate until such amount
shall be paid in full (after as well as before judgment).
5.10.2. Amounts Not Overdue. During the continuance of an
-------------------
Event of Default the principal of the Loans not overdue shall, until
such Event of Default has been cured or remedied or such Event of
Default has been waived by the Majority Banks pursuant to ss.26, bear
interest at a rate per annum equal to one percent (1%) above the rate
of interest otherwise applicable to such Loans.
6. GUARANTY
--------
Whereas, (i) the Borrower and each of the Guarantors are members of a
group of related corporations, the success of any one of which is dependent in
part on the success of the other members of such group, (ii) each Guarantor
expects to receive substantial direct and indirect benefits from the extensions
of
<PAGE>
-36-
credit to the Borrower by the Banks pursuant to this Credit Agreement (which
benefits are hereby acknowledged), (iii) it is a condition precedent to the
Banks making any Loans or otherwise extending credit to the Borrower under this
Agreement that each Guarantor execute and deliver to the Banks, the Issuing
Bank, and the Agent a guaranty substantially in the form of this ss.6 and (iv)
each Guarantor wishes to guaranty the Borrower's obligations to the Banks, the
Issuing Bank and the Agent under or in respect of the Credit Agreement, each
Guarantor hereby agrees with the Banks, the Issuing Bank and the Agent as
follows:
6.1. Guaranty of Payment and Performance. Each of the Guarantors
-----------------------------------
hereby jointly and severally guarantees to the Banks, the Issuing Bank and the
Agent the full and punctual payment when due (whether at stated maturity, by
required pre-payment, by acceleration or otherwise), as well as the performance,
of all of the Obligations including all such which would become due but for the
operation of the automatic stay pursuant to ss.362(a) of the Federal Bankruptcy
Code and the operation of ss.ss.502(b) and 506(b) of the Federal Bankruptcy
Code. This Guaranty is an absolute, unconditional and continuing guaranty of the
full and punctual payment and performance of all of the Obligations and not of
their collectibility only and is in no way conditioned upon any requirement that
the Agent, the Issuing Bank or any Bank first attempt to collect any of the
Obligations from the Borrower or resort to any collateral security or other
means of obtaining payment. Should the Borrower default in the payment or
performance of any of the Obligations, the obligations of the Guarantors
hereunder with respect to such Obligations in default shall become immediately
due and payable to the Agent, for the benefit of the Banks, the Issuing Bank and
the Agent, without demand or notice of any nature, all of which are expressly
waived by each of the Guarantors. Payments by the Guarantors hereunder may be
required by the Agent on any number of occasions.
6.2. Guarantors' Agreement to Pay Enforcement Costs, etc. Each of the
---------------------------------------------------
Guarantors further jointly and severally agrees, as the principal obligor and
not as a guarantor only, to pay to the Agent, on demand, all costs and expenses
(including court costs and legal expenses) incurred or expended by the Agent,
the Issuing Bank or any Bank in connection with the Obligations, this Guaranty
and the enforcement thereof, together with interest on amounts recoverable under
this ss.6.2 from the time when such amounts become due until payment, whether
before or after judgment, at the rate of interest for overdue principal set
forth in ss.5.10 hereof, provided that if such interest exceeds the maximum
amount permitted to be paid under applicable law, then such interest shall be
reduced to such maximum permitted amount.
6.3. Waivers by Guarantors; Banks' Freedom to Act. Each of the
---------------------------------------------
Guarantors agrees that the Obligations will be paid and performed strictly in
accordance with their respective terms, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Agent, the Issuing Bank or any Bank with respect thereto.
<PAGE>
-37-
Each of the Guarantors waives promptness, diligences, presentment, demand,
protest, notice of acceptance, notice of any Obligations incurred and all other
notices of any kind, all defenses which may be available by virtue of any
valuation, stay, moratorium law or other similar law now or hereafter in effect,
any right to require the marshalling of assets of the Borrower, any of the
Guarantors or any other entity or other person primarily or secondarily liable
with respect to any of the Obligations, and all suretyship defenses generally.
Without limiting the generality of the foregoing, each of the Guarantors agrees
to the provisions of any instrument evidencing, securing or otherwise executed
in connection with any Obligation and agrees that the obligations of such
Guarantor hereunder shall not be released or discharged, in whole or in part, or
otherwise affected by (i) the failure of the Agent, the Issuing Bank or any Bank
to assert any claim or demand or to enforce any right or remedy against the
Borrower or any other entity or other person primarily or secondarily liable
with respect to any of the Obligations; (ii) any extensions, compromise,
refinancing, consolidation or renewals of any Obligation; (iii) any change in
the time, place or manner of payment of any of the Obligations or any
rescissions, waivers, compromise, refinancing, consolidation, amendments or
modifications of any of the terms or provisions of this Credit Agreement, the
Revolving Credit Notes, the other Loan Documents or any other agreement
evidencing, securing or otherwise executed in connection with any of the
Obligations; (iv) the addition, substitution or release of any entity or other
person primarily or secondarily liable for any Obligation; (v) the adequacy of
any rights which the Agent, the Issuing Bank or any Bank may have against any
collateral security or other means of obtaining repayment of any of the
Obligations; (vi) the impairment of any collateral securing any of the
Obligations, including without limitation the failure to perfect or preserve any
rights which the Agent, the Issuing Bank or any Bank might have in such
collateral security or the substitution, exchange, surrender, release, loss or
destruction of any such collateral security; or (vii) any other act or omission
which might in any manner or to any extent vary the risk of such Guarantor or
otherwise operate as a release or discharge of such Guarantor, all of which may
be done without notice to such Guarantor. To the fullest extent permitted by
law, each of the Guarantors hereby expressly waives any and all rights or
defenses arising by reason of (A) any "one action" or "anti-deficiency" law
which would otherwise prevent the Agent, the Issuing Bank or any Bank from
bringing any action, including any claim for a deficiency, or exercising any
other right or remedy (including any right of set-off), against such Guarantor
before or after the Agent's, the Issuing Bank's or such Bank's commencement or
completion of any foreclosure action, whether judicially, by exercise of power
of sale or otherwise, or (B) any other law which in any other way would
otherwise require any election of remedies by the Agent, the Issuing Bank or any
Bank.
6.4. Unenforceability of Obligations Against Borrower. If for any
------------------------------------------------
reason the Borrower or any other Guarantor has no legal existence or is under no
legal obligation to discharge any of the Obligations, or if any of the
Obligations have become irrecoverable from the Borrower or any other
<PAGE>
-38-
Guarantor by reason of the Borrower's or such other Guarantor's insolvency,
bankruptcy or reorganization or by other operation of law or for any other
reason, this Guaranty shall nevertheless be binding on each of the Guarantors
not affected thereby to the same extent as if such Guarantor at all times had
been the principal obligor on all such Obligations. In the event that
acceleration of the time for payment of any of the Obligations is stayed upon
the insolvency, bankruptcy or reorganization of the Borrower, or for any other
reason, all such amounts otherwise subject to acceleration under the terms of
this Credit Agreement, the Revolving Credit Notes, the other Loan Documents or
any other agreement evidencing, securing or otherwise executed in connection
with any Obligation shall be immediately due and payable by the Guarantors.
6.5. Subrogation; Subordination.
--------------------------
6.5.1. Waiver of Rights Against Borrower. Until the final
---------------------------------
payment and performance in full of all of the Obligations and any and
all other obligations of the Borrower to the Agent, the Issuing Bank,
any Bank or any affiliate of the Agent, the Issuing Bank or any Bank,
none of the Guarantors shall exercise any rights against the Borrower
or any of the other Guarantors arising as a result of payment by any
of the Guarantors hereunder, by way of subrogation, reimbursement,
restitution, contribution or otherwise, and will not prove any claim
in competition with the Agent, the Issuing Bank or any Bank or such
affiliate in respect of any payment hereunder in any bankruptcy,
insolvency or reorganization case or proceedings of any nature; none
of the Guarantors will claim any setoff, recoupment or counterclaim
against the Borrower or any of the other Guarantors in respect of any
liability of any of the Guarantors to the Borrower or such other
Guarantor; and each of the Guarantors waives any benefit of and any
right to participate in any collateral security which may be held by
the Agent, the Issuing Bank, any Bank or any such affiliate.
6.5.2. Subordination. The payment of any amounts due with
-------------
respect to any indebtedness of the Borrower or any Guarantor now or
hereafter owed to any of the Guarantors is hereby subordinated to the
prior payment in full of all of the Obligations and any and all other
obligations of the Borrower and the Guarantors to the Agent, the
Issuing Bank, any Bank or any affiliate of the Agent, the Issuing
Bank or any Bank. Each of the Guarantors agrees that, after the
occurrence of any default the payment or performance of any of the
Obligations, such Guarantor will not demand, sue for or otherwise
attempt to collect any such indebtedness of the Borrower or any other
Guarantor to such Guarantor until all of the Obligations shall have
been paid in full. If, notwithstanding the foregoing sentence, such
Guarantor shall collect, enforce or receive any amounts in respect of
such indebtedness, such amounts shall be collected, enforced and
received by such Guarantor as trustee for the Banks, the Issuing Bank
and the Agent and be paid over to the Agent, for the benefit of the
Banks, the Issuing Bank and the
<PAGE>
-39-
Agent on account of the Obligations without affecting in any manner
the liability of such Guarantor under the other provisions of this
Guaranty.
6.5.3. Provisions Supplemental. The provisions of this
-----------------------
ss.6.5.3 shall be supplemental to and not in derogation of any rights
and remedies of the Banks, the Issuing Bank and the Agent or any
affiliate of any Banks, the Issuing Bank and the Agent under any
separate subordination agreement which such Bank, the Issuing Bank
and the Agent or such affiliate may at any time and from time to time
enter into with any of the Guarantors.
6.6. Security; Setoff. Each of the Guarantors grants to the Agent,
----------------
the Issuing Bank and the Banks, as security for the full and punctual payment
and performance of all of such Guarantor's obligations hereunder, a continuing
lien on and security interest in all securities or other property belonging to
such Guarantor now or hereafter held by the Agent, the Issuing Bank or such Bank
and in all deposits (general or special, time or demand, provisional or final)
and other sums credited by or due from the Agent, the Issuing Bank or such Bank
to such Guarantor or subject to withdrawal by such Guarantor. Regardless of the
adequacy of any collateral security or other means of obtaining payment of any
of the Obligations, each of the Agent, the Issuing Bank and the Banks is hereby
authorized at any time and from time to time, without notice to any of the
Guarantors (any such notice being expressly waived by each of the Guarantors)
and to the fullest extent permitted by law, to set off and apply such deposits
and other sums against the obligations of such Guarantors under this Guaranty,
whether or not the Agent, the Issuing Bank or such Bank shall have made any
demand under this Guaranty and although such obligations may be contingent or
unmatured.
6.7. Further Assurances. Each of the Guarantors also agrees to do all
------------------
such things and execute all such documents as the Agent may consider necessary
or desirable to give full effect to this Guaranty and to perfect and preserve
the rights and powers of the Banks, the Issuing Bank and the Agent hereunder.
Each of the Guarantors acknowledges and confirms that such Guarantor itself has
established its own adequate means of obtaining from the Borrower on a
continuing basis all information desired by such Guarantor concerning the
financial condition of the Borrower and that such Guarantor will look to the
Borrower and not to the Agent, the Issuing Bank or any Bank in order for such
Guarantor to keep adequately informed of changes in the Borrower's financial
condition.
6.8. Termination; Reinstatement. This Guaranty shall remain in full
--------------------------
force and effect until all Obligations have been irrevocably paid in full in
cash and all Commitments under this Credit Agreement have been terminated. This
Guaranty shall continue to be effective or be reinstated, if at any time any
payment made or value received with respect to any Obligation is rescinded or
must otherwise be returned by the Agent, the Issuing Bank or any Bank upon
<PAGE>
-40-
the insolvency, bankruptcy or reorganization of the Borrower, or otherwise, all
as though such payment had not been made or value received.
6.9. Successors and Assigns. This Guaranty shall be binding upon each
----------------------
of the Guarantors, their successors and assigns, and shall inure to the benefit
of and be enforceable by the Agent, the Issuing Bank and the Banks and its
successors, transferees and assigns. Without limiting the generality of the
foregoing sentence, each Bank may assign or otherwise transfer this Credit
Agreement, the Revolving Credit Notes, the other Loan Documents or any other
agreement or note held by it evidencing, securing or otherwise executed in
connection with the Obligations, or sell participations in any interest therein,
to any other entity or other person, and such other entity or other person shall
thereupon become vested, to the extent set forth in the agreement evidencing
such assignment, transfer or participation, with all the rights in respect
thereof granted to such Bank herein, all in accordance with ss.20 hereof. None
of the Guarantors may assign any of its obligations hereunder.
7. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Borrower represents and warrants to the Banks, the Issuing Bank
and the Agent as follows:
7.1. Corporate Authority.
-------------------
7.1.1. Incorporation; Good Standing. Each of the Borrower
----------------------------
and its Restricted Subsidiaries (i) is a corporation or partnership
duly organized, validly existing and in good standing under the laws
of its state of incorporation or organization, (ii) has all requisite
corporate or other power to own its property and conduct its business
as now conducted and as presently contemplated, and (iii) is in good
standing as a foreign corporation or partnership and is duly
authorized to do business in each jurisdiction where such
qualification is necessary except where a failure to be so qualified
would not have a materially adverse effect on the business, assets or
financial condition of the Borrower or such Restricted Subsidiary.
7.1.2. Authorization. The execution, delivery and
-------------
performance of this Credit Agreement and the other Loan Documents to
which the Borrower or any of its Restricted Subsidiaries is or is to
become a party and the transactions contemplated hereby and thereby
(i) are within the corporate or other authority of such Person, (ii)
have been duly authorized by all necessary corporate or other
proceedings, (iii) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation to
which the Borrower or any of its Restricted Subsidiaries is subject
or any judgment, order, writ, injunction, license or permit
applicable to the Borrower or any of its Subsidiaries and (iv) do not
conflict with any provision of the corporate charter, bylaws,
certificate of limited partnership or partnership
<PAGE>
-41-
agreement of, or any agreement or other instrument binding upon the
Borrower or any of its Restricted Subsidiaries.
7.1.3. Enforceability. The execution and delivery of this
--------------
Credit Agreement and the other Loan Documents to which the Borrower
or any of its Restricted Subsidiaries is or is to become a party will
result in valid and legally binding obligations of such Person
enforceable against it in accordance with the respective terms and
provisions hereof and thereof, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors'
rights and except to the extent that availability of the remedy of
specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be
brought.
7.2. Governmental Approvals. The execution, delivery and performance
----------------------
by the Borrower and any of its Restricted Subsidiaries of this Credit Agreement
and the other Loan Documents to which the Borrower or any of its Restricted
Subsidiaries is or is to become a party and the transactions contemplated hereby
and thereby do not require the approval or consent of, or filing with, any
governmental agency or authority (including without limitation, the STB) other
than those already obtained.
7.3. Title to Properties; Leases. Except as indicated on Schedule
---------------------------
7.3 hereto, the Borrower and its Restricted Subsidiaries own all of the assets
reflected in the consolidated balance sheet of the Borrower and its Restricted
Subsidiaries as at the Balance Sheet Date or acquired since that date (except
property and assets sold or otherwise disposed of in the ordinary course of
business since that date), subject to no rights of others, including any
mortgages, leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except Permitted Liens and the rights of lessees and
other parties lawfully in possession in the ordinary course of business.
7.4. Financial Statements and Projections.
------------------------------------
7.4.1. Financial Statements. There has been furnished to
--------------------
each of the Banks a consolidated balance sheet of the Borrower and
its Restricted Subsidiaries as at the Balance Sheet Date, and a
consolidated statement of income of the Borrower and its Restricted
Subsidiaries for the fiscal year then ended, certified by Arthur
Andersen L.L.P. Such balance sheet and statement of income have been
prepared in accordance with generally accepted accounting principles
and fairly present the financial condition of the Borrower as at the
close of business on the date thereof and the results of operations
for the fiscal year then ended. There are no contingent liabilities
of the Borrower or any of its Restricted Subsidiaries as of such date
involving material amounts, to the best of the knowledge of the
officers of the Borrower, which were not disclosed in such balance
sheet and the notes related thereto.
<PAGE>
-42-
7.4.2. Projections. The projections of the Borrower and its
-----------
Restricted Subsidiaries including (i) on an annual basis,
consolidated balance sheets, income and cash flow statements for the
period from January 1, 1998 through December 31, 2002 and (ii)
quarterly calculations of the covenants contained in ss.10 hereof for
the 1998 through 2002 fiscal years, copies of which have been
delivered to each Bank, disclose all assumptions made with respect to
general economic, financial and market conditions used in formulating
such projections. To the best knowledge of the Borrower or any of its
Restricted Subsidiaries, no facts exist that (individually or in the
aggregate) would result in any material change in any of such
projections. The projections are based upon reasonable estimates and
assumptions, have been prepared on the basis of the assumptions
stated therein and reflect the reasonable estimates of the Borrower
and its Restricted Subsidiaries of the results of operations and
other information projected therein.
7.5. No Material Changes, etc.; Solvency.
-----------------------------------
7.5.1. Changes. Since the Balance Sheet Date there has
-------
occurred no materially adverse change in the financial condition or
business of the Borrower and its Restricted Subsidiaries as shown on
or reflected in the consolidated balance sheet of the Borrower and
its Restricted Subsidiaries as at the Balance Sheet Date, or the
consolidated statement of income for the fiscal year then ended,
other than changes in the ordinary course of business that have not
had any materially adverse effect on the business or financial
condition of the Borrower and its Restricted Subsidiaries. Since the
Balance Sheet Date, the Borrower has not made any Restricted Payment
in excess of the amount permitted by ss.9.4 hereof.
7.5.2. Solvency. Both before and after giving effect to the
--------
transactions contemplated by this Credit Agreement and the other Loan
Documents, the Borrower and its Restricted Subsidiaries, on a
consolidated basis, are Solvent. As used herein, "Solvent" shall mean
that the Borrower and its Restricted Subsidiaries (i) have assets
having a fair value in excess of their liabilities, (ii) have assets
having a fair value in excess of the amount required to pay their
liabilities on existing debts as such debts become absolute and
matured, and (iii) have, and expect to continue to have, access to
adequate capital for the conduct of their business and the ability to
pay their debts from time to time incurred in connection with the
operation of their business as such debts mature.
7.6. Franchises, Patents, Copyrights, etc. Each of the Borrower and
-------------------------------------
its Restricted Subsidiaries possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of its business substantially as now
conducted without, to the best of their knowledge, conflict with any rights of
others.
<PAGE>
-43-
7.7. Litigation. Except as set forth in Schedule 7.7 hereto, there
----------
are no actions, suits, proceedings or investigations of any kind pending or
threatened against the Borrower or any of its Restricted Subsidiaries before any
court, tribunal or administrative agency or board that, if adversely determined,
would materially adversely affect the properties, assets, financial condition or
business of the Borrower and its Restricted Subsidiaries taken as a whole or
materially impair the right of the Borrower and its Restricted Subsidiaries,
considered as a whole, to carry on business substantially as now conducted by
them, or result in any substantial liability not adequately covered by
insurance, or for which adequate reserves are not maintained on the consolidated
balance sheet of the Borrower and its Restricted Subsidiaries, or which question
the validity of this Credit Agreement or any of the other Loan Documents, or any
action taken or to be taken pursuant hereto or thereto.
7.8. No Materially Adverse Contracts, etc. Neither the Borrower nor
-------------------------------------
any of its Restricted Subsidiaries is subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation that has
or is expected in the future to have a materially adverse effect on the
business, assets or financial condition of the Borrower or any of its Restricted
Subsidiaries. Neither the Borrower nor any of its Restricted Subsidiaries is a
party to any contract or agreement that has or is expected, in the judgment of
the Borrower's officers, to have any materially adverse effect on the business
of the Borrower or any of its Restricted Subsidiaries.
7.9. Compliance with Other Instruments, Laws, etc. Neither the
---------------------------------------------
Borrower nor any of its Restricted Subsidiaries is in violation of any provision
of its charter documents, bylaws, or any agreement or instrument to which it may
be subject or by which it or any of its properties may be bound or any decree,
order, judgment, statute, license, rule or regulation, in any of the foregoing
cases in a manner that could result in the imposition of substantial penalties
or materially and adversely affect the financial condition, properties or
business of the Borrower or any of its Restricted Subsidiaries.
7.10. Tax Status. The Borrower and its Restricted Subsidiaries (i)
----------
have made, filed or duly extended all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which any of
them is subject, (ii) have paid all taxes and other governmental assessments and
charges shown or determined to be due on such returns, reports and declarations
and all estimated taxes in connection with any extensions, except those being
contested in good faith and by appropriate proceedings and (iii) have set aside
on their books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Borrower know of
no basis for any such claim.
7.11. No Event of Default. No Default or Event of Default has
-------------------
occurred and is continuing.
<PAGE>
-44-
7.12. Holding Company and Investment Company Acts. Neither the
-------------------------------------------
Borrower nor any of its Restricted Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is it an "investment company", or an "affiliated company" or a
"principal underwriter" of an "investment company", as such terms are defined in
the Investment Company Act of 1940.
7.13. Absence of Financing Statements, etc. Except with respect to
-------------------------------------
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of the Borrower or any of its Restricted Subsidiaries
or any rights relating thereto.
7.14. Certain Transactions. Except for arm's length transactions
--------------------
pursuant to which the Borrower or any of its Restricted Subsidiaries makes
payments in the ordinary course of business upon terms no less favorable than
the Borrower or such Restricted Subsidiary could obtain from third parties, none
of the officers, directors, or employees of the Borrower or any of its
Restricted Subsidiaries or other non-Restricted Subsidiary Affiliates is
presently a party to any transaction with the Borrower or any of its Restricted
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the best knowledge of the Borrower, any
corporation, partnership, trust or other entity in which any officer, director,
other non-Restricted Subsidiary Affiliates or any such employee has a
substantial interest or is an officer, director, trustee or partner.
7.15. Employee Benefit Plans.
----------------------
7.15.1. In General. Each Employee Benefit Plan has been
----------
maintained and operated in compliance in all material respects with
the provisions of ERISA and, to the extent applicable, the Code,
including but not limited to the provisions thereunder respecting
prohibited transactions. The Borrower has heretofore delivered to the
Agent the most recently completed annual report, Form 5500, with all
required attachments, and actuarial statement required to be
submitted under ss.103(d) of ERISA, with respect to each Guaranteed
Pension Plan.
7.15.2. Terminability of Welfare Plans. Under each Employee
------------------------------
Benefit Plan which is an employee welfare benefit plan within the
meaning of ss.3(1) or ss.3(2)(B) of ERISA, no benefits are due unless
the event giving rise to the benefit entitlement occurs prior to plan
termination (except as required by Title I, Part 6 of ERISA). Any of
the
<PAGE>
-45-
Borrower or an ERISA Affiliate, as appropriate, may terminate each
such Plan at any time (or at any time subsequent to the expiration of
any applicable bargaining agreement) in the discretion of the
Borrower or such ERISA Affiliate without liability to any Person.
7.15.3. Guaranteed Pension Plans. Each contribution
------------------------
required to be made to a Guaranteed Pension Plan, whether required to
be made to avoid the incurrence of an accumulated funding deficiency,
the notice or lien provisions of ss.302(f) of ERISA, or otherwise,
has been timely made. No waiver of an accumulated funding deficiency
or extension of amortization periods has been received with respect
to any Guaranteed Pension Plan. No liability to the PBGC (other than
required insurance premiums, all of which have been paid) has been
incurred by any of the Borrowers or any ERISA Affiliate with respect
to any Guaranteed Pension Plan and there has not been any ERISA
Reportable Event, or any other event or condition which presents a
material risk of termination of any Guaranteed Pension Plan by the
PBGC. Based on the latest valuation of each Guaranteed Pension Plan
(which in each case occurred within twelve months of the date of this
representation), and on the actuarial methods and assumptions
employed for that valuation, the aggregate benefit liabilities of all
such Guaranteed Pension Plans within the meaning of ss.4001 of ERISA
did not exceed the aggregate value of the assets of all such
Guaranteed Pension Plans, disregarding for this purpose the benefit
liabilities and assets of any Guaranteed Pension Plan with assets in
excess of benefit liabilities, by more than $200,000.
7.15.4. Multiemployer Plans. Neither the Borrower nor any
-------------------
ERISA Affiliate has incurred any material liability (including
secondary liability) to any Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan under
ss.4201 of ERISA or as a result of a sale of assets described in
ss.4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has
been notified that any Multiemployer Plan is in reorganization or
insolvent under and within the meaning of ss.4241 or ss.4245 of ERISA
or that any Multiemployer Plan intends to terminate or has been
terminated under ss.4041A of ERISA.
7.16. Use of Proceeds; Regulations U and X. The proceeds of the Loans
------------------------------------
shall be used by the Borrower solely to restate and refinance the Loans under
the Prior Credit Agreement, for Permitted Acquisitions and for working capital
and general corporate purposes. The Borrower will obtain Letters of Credit
solely for Permitted Acquisitions and for working capital and general corporate
purposes. No portion of any Loan is to be used, and no portion of any Letter of
Credit is to be obtained, for the purpose of purchasing or carrying any "margin
security" or "margin stock" as such terms are used in Regulations U and X of the
Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
<PAGE>
-46-
7.17. Environmental Compliance. The Borrower has taken all reasonable
------------------------
steps to investigate the past and present condition and usage of the Real Estate
and the operations conducted thereon and, based upon such reasonable
investigation, has determined that:
(a) to the best of the Borrower's knowledge and except as
set forth on Schedule 7.17 attached hereto, none of the Borrower, its
-------- ----
Restricted Subsidiaries nor any operator of the Real Estate or any
operations thereon is in violation, or alleged violation, of any
judgment, decree, order, law, license, rule or regulation pertaining
to environmental matters, including without limitation, those arising
under the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act,
the Federal Clean Air Act, the Toxic Substances Control Act, or any
state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter
"Environmental Laws"), which violation could have a material adverse
effect on the environment or the business, assets or financial
condition of the Borrower or any of its Restricted Subsidiaries;
(b) except as set forth in Schedule 7.17 attached hereto,
-------- ----
neither the Borrower nor any of its Restricted Subsidiaries has
received notice from any third party including, without limitation,
any federal, state or local governmental authority, (i) that any one
of them has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under
CERCLA with respect to a site listed on the National Priorities List,
40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as
defined by 42 U.S.C. ss.6903(5), any hazardous substances as defined
by 42 U.S.C. ss.9601(14), any pollutant or contaminant as defined by
42 U.S.C. ss.9601(33) and any toxic substances, oil or hazardous
materials or other chemicals or substances regulated by any
Environmental Laws ("Hazardous Substances") which any one of them has
generated, transported or disposed of has been found at any site at
which a federal, state or local agency or other third party has
conducted or has ordered that the Borrower or any of its Restricted
Subsidiaries conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it
is or shall be a named party to any claim, action, cause of action,
complaint, or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's incurrence
of costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances;
(c) except as set forth on Schedule 7.17 attached hereto:
(i) to the best of the Borrower's knowledge, no portion of the Real
Estate has been used for the handling, processing, storage or
disposal of Hazardous
<PAGE>
-47-
Substances which would have a material adverse effect on the value of
the Real Estate which in turn would have a material adverse effect on
the business, assets or financial condition of the Borrower or any of
its Restricted Subsidiaries except in accordance with applicable
Environmental Laws; and no underground tank or other underground
storage receptacle for Hazardous Substances which would have a
material adverse effect on the value of the Real Estate which in turn
would have a material adverse effect on the business, assets or
financial condition of the Borrower or any of its Restricted
Subsidiaries is located on any portion of the Real Estate except in
accordance with applicable Environmental Laws; (ii) in the course of
any activities conducted by the Borrower, its Restricted Subsidiaries
or operators of its properties, no Hazardous Substances have been
generated or are being used on the Real Estate except in accordance
with applicable Environmental Laws; (iii) to the best of the
Borrower's knowledge, there have been no releases (i.e. any past or
present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Substances on, upon, into or from
the properties of the Borrower or its Restricted Subsidiaries, which
releases would have a material adverse effect on the value of any of
the Real Estate or adjacent properties or the environment; (iv) to
the best of the Borrower's knowledge, there have been no releases on,
upon, from or into any real property in the vicinity of any of the
Real Estate which, through soil or groundwater contamination, may
have come to be located on, and which would have a material adverse
effect on the value of, the Real Estate; and (v) in addition, to the
best of the Borrower's knowledge, any Hazardous Substances that have
been generated on any of the Real Estate after the effective date of
RCRA and applicable regulations have been transported offsite only by
carriers having an identification number issued by the EPA, treated
or disposed of only by treatment or disposal facilities maintaining
valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the
Borrower's knowledge, operating in compliance with such permits and
applicable Environmental Laws; and
(d) except as listed on Schedule 7.17 hereto, none of the
-------- ----
Borrower and its Restricted Subsidiaries, nor any of the Real Estate
is subject to any applicable environmental law requiring the
performance of Hazardous Substances site assessments, or the removal
or remediation of Hazardous Substances, or the giving of notice to
any governmental agency or the recording or delivery to other Persons
of an environmental disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby, or as a
condition to the effectiveness of any other transactions contemplated
hereby.
7.18. Subsidiaries, etc. The Borrower's only Subsidiaries are as set
------------------
forth on Schedule 7.18 hereof and the Borrower holds the ownership interests in
-------- ----
each Subsidiary described on Schedule 7.18. None of the Subsidiaries of the
-------- ----
<PAGE>
-48-
Borrower has any other Subsidiaries except as set forth on Schedule 7.18 hereto.
Neither the Borrower nor any of its Restricted Subsidiaries is engaged in any
joint venture or partnership with any other Person, except that Dayton is the
sole general partner and Investors is the sole limited partner in Switching.
7.19. Capitalization. The Borrower is the record and beneficial
--------------
owner, free and clear of all liens of all of the issued and outstanding capital
stock of each of the Restricted Subsidiaries (excluding Switching) except that
the Borrower owns only 454 shares of the 458 shares of the issued and
outstanding capital stock of Dansville. All shares of such capital stock have
been validly issued, are outstanding, fully paid and nonassessable and no
options, warrants or other rights to subscribe to additional shares of the
capital stock of each of the Restricted Subsidiaries (excluding Switching) have
been granted or exist. Dayton and Investors are the record and beneficial
owners, free and clear of all liens of all of the partnership interests of
Switching.
7.20. Fiscal Year. Each of the Borrower and its Restricted
------------
Subsidiaries has a fiscal year which is twelve calendar months ending on
December 31 of each year.
7.21. Operation of Railroads. The Borrower is primarily engaged in
----------------------
the business of providing management and administrative services to rail
carriers and other entities in the transportation business, and holding stock of
its Subsidiaries. The Borrower's Restricted Subsidiaries (other than Leasing,
RSI, Dayton, Management, Investors and GWI Canada) are primarily engaged in the
railroad business in the states set forth below their respective names on
Schedule 7.21 attached hereto. RSI and Management provide management and support
- -------- ----
functions for certain of the other Restricted Subsidiaries. Dayton and Investors
are holding companies engaged solely in the business of holding the partnership
interests of Switching. GWI Canada is a holding company engaged solely in the
business of holding the stock of GRO. Leasing is primarily engaged in the
business of acquiring, rebuilding, leasing and selling locomotives and rolling
stock, and in other activities related to rail transportation. Each of the
Restricted Subsidiaries (other than Leasing, RSI, Dayton, Management, Investors
and GWI Canada) operates railroads in accordance with applicable laws.
7.22. Disclosure. No representation or warranty made by the Borrower
----------
or any Restricted Subsidiary in any Loan Document to which it is a party and no
document or information furnished to the Agent or the Banks by or on behalf of
or at the request of the Borrower or any Restricted Subsidiary in connection
with any of the transactions contemplated by the Loan Documents contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained therein not misleading in
light of the circumstances in which they are made.
<PAGE>
-49-
8. AFFIRMATIVE COVENANTS OF THE BORROWER.
-------------------------------------
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Revolving Credit Note is
outstanding or any Bank has any obligation to make any Loans or the Issuing Bank
has any obligation to issue, extend or renew any Letters of Credit:
8.1. Punctual Payment. The Borrower will duly and punctually pay or
----------------
cause to be paid the principal and interest on the Loans, all Reimbursement
Obligations, the Letter of Credit Fees, the commitment fees, the Agent's Fees
and all other amounts provided for in this Credit Agreement and the other Loan
Documents to which the Borrower or any of its Restricted Subsidiaries is a
party, all in accordance with the terms of this Credit Agreement and such other
Loan Documents.
8.2. Maintenance of Office. The Borrower will maintain its chief
---------------------
executive office at 71 Lewis Street, Greenwich, CT, or at such other place in
the United States of America as the Borrower shall designate, upon thirty (30)
days prior written notice to the Agent, where notices, presentations and demands
to or upon the Borrower in respect of the Loan Documents to which the Borrower
is a party may be given or made.
8.3. Records and Accounts. The Borrower will (i) keep, and cause each
--------------------
of its Restricted Subsidiaries to keep, true and accurate records and books of
account in which full, true and correct entries will be made in accordance with
generally accepted accounting principles and (ii) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Restricted Subsidiaries, contingencies, and other reserves.
8.4. Financial Statements, Certificates and Information. The Borrower
--------------------------------------------------
will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than
ninety (90) days after the end of each fiscal year of the Borrower,
the consolidated balance sheet of the Borrower and its Restricted
Subsidiaries, as at the end of such year, and the related
consolidated statement of income and consolidated statement of cash
flow, each setting forth in comparative form the figures for the
previous fiscal year, and the partial consolidating (in accordance
with past practices) balance sheet of the Borrower and its Restricted
Subsidiaries, as at the end of such year, and the consolidating
statement of income and consolidating statement of cash flow for such
year, and all such consolidated and consolidating statements to be in
reasonable detail and prepared in accordance with generally accepted
accounting principles, and all such consolidated statements to be
certified without qualification by Arthur Andersen L.L.P. or by other
independent certified public accountants satisfactory to the Agent,
together with a written statement from such accountants to
<PAGE>
-50-
the effect that they have read a copy of this Credit Agreement, and
that, in making the examination necessary to said certification, they
have obtained no knowledge of any Default or Event of Default, or, if
such accountants shall have obtained knowledge of any then existing
Default or Event of Default they shall disclose in such statement any
such Default or Event of Default; provided that such accountants
shall not be liable to the Banks for failure to obtain knowledge of
any Default or Event of Default;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the first three fiscal
quarters of the Borrower and not later than sixty (60) days after the
end of the fourth fiscal quarter of the Borrower, copies of the
unaudited consolidated balance sheet of the Borrower and its
Restricted Subsidiaries as at the end of such quarter, and the
related consolidated statement of income and consolidated statement
of cash flow for the portion of the Borrower's fiscal year then
elapsed, all in reasonable detail and prepared in accordance with
generally accepted accounting principles, together with a
certification by the principal financial or accounting officer of the
Borrower that the information contained in such financial statements
fairly presents the financial position of the Borrower and its
Restricted Subsidiaries on the date thereof (subject to year-end
adjustments);
(c) simultaneously with the delivery of the financial
statements referred to in subsection (a) above and the delivery of
the financial statements referred to in subsection (b) above with
respect to the first three fiscal quarters of the Borrower, a
statement certified by the principal financial or accounting officer
of the Borrower in substantially the form of Exhibit C hereto (a
"Compliance Certificate") and setting forth in reasonable detail
computations evidencing compliance with ss.3.2.2 and the covenants
contained in ss.10 and, in each case, (if applicable) reconciliations
to reflect changes in generally accepted accounting principles since
the Balance Sheet Date;
(d) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the
Securities and Exchange Commission or sent to the stockholders of the
Borrower;
(e) no later than January 31 of each fiscal year of the
Borrower, the annual budgets of the Borrower and its Restricted
Subsidiaries, including a projected consolidated and consolidating
balance sheet for the end of such fiscal year, and consolidated and
consolidating statements of income and statements of cash flow for
such fiscal year; and
(f) from time to time such other financial data and
information (including accountants' management letters) as the Agent
or any Bank may reasonably request.
<PAGE>
-51-
8.5. Notices.
-------
8.5.1. Defaults. The Borrower will promptly notify the
--------
Agent and each of the Banks in writing of the occurrence of any
Default or Event of Default of which they become aware. If any Person
shall give any notice or take any other action in respect of a
claimed default (whether or not constituting an Event of Default)
under this Credit Agreement or any other note, evidence of
indebtedness, indenture or other obligation to which or with respect
to which the Borrower or any of its Restricted Subsidiaries is a
party or obligor, whether as principal, guarantor, surety or
otherwise, the Borrower shall forthwith give written notice thereof
to the Agent and each of the Banks, describing the notice or action
and the nature of the claimed default.
8.5.2. Environmental Events. The Borrower will within three
--------------------
(3) days of becoming aware thereof, give notice to the Agent and each
of the Banks (i) of any violation of any Environmental Law that the
Borrower or any of its Restricted Subsidiaries reports in writing or
is reportable by such Person in writing (or for which any written
report supplemental to any oral report is made) to any federal, state
or local environmental agency and (ii) upon becoming aware thereof,
of any inquiry, proceeding, investigation, or other action, including
a notice from any agency of potential environmental liability, of any
federal, state or local environmental agency or board, that has the
potential to materially affect the assets, liabilities, financial
conditions or operations of the Borrower or any of its Restricted
Subsidiaries.
8.5.3. Notice of Litigation and Judgments. The Borrower
----------------------------------
will, and will cause each of its Restricted Subsidiaries to, give
notice to the Agent and each of the Banks in writing within fifteen
(15) days of becoming aware of any litigation or proceedings
threatened in writing or any pending litigation and proceedings
affecting the Borrower or any of its Restricted Subsidiaries or to
which the Borrower or any of its Restricted Subsidiaries is or
becomes a party involving an uninsured claim against the Borrower or
any of its Restricted Subsidiaries that could reasonably be expected
to have a materially adverse effect on the Borrower and its
Restricted Subsidiaries taken as a whole and stating the nature and
status of such litigation or proceedings. The Borrower will, and will
cause each of its Restricted Subsidiaries to, give notice to the
Agent and each of the Banks, in writing, in form and detail
satisfactory to the Agent, within ten (10) days of any judgment not
covered by insurance, final or otherwise, against the Borrower or any
of its Restricted Subsidiaries in an amount in excess of $500,000.
8.5.4. Notification of Derailments. The Borrower will, and
---------------------------
will cause each of its Restricted Subsidiaries to, give notice to the
Agent and each of the Banks in writing within three (3) days of
becoming aware thereof of any derailments or other types of accidents
which result (or
<PAGE>
-52-
could result) in the incurrence of costs by the Borrower and its
Restricted Subsidiaries reasonably estimated to be or exceed
$1,000,000 and which could reasonably be expected to have a material
adverse effect on the operations of the Borrower or any of its
Restricted Subsidiaries. The Borrower shall deliver to the Agent and
each of the Banks all reports filed with the FRA regarding any
occurrence referred to in this ss.8.5.4.
8.6. Corporate Existence; Maintenance of Properties. The Borrower
----------------------------------------------
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises and those of its
Restricted Subsidiaries and will not, and will not cause or permit any of its
Restricted Subsidiaries to, convert to a limited liability company or a limited
liability partnership. It (i) will cause all of its properties and those of its
Restricted Subsidiaries used or useful in the conduct of its business or the
business of its Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment,
(ii) will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, and (iii) will, and will
cause each of its Restricted Subsidiaries to, continue to engage primarily in
the businesses now conducted by them and in related businesses; provided that
nothing in this ss.8.6 shall prevent the Borrower from discontinuing or reducing
the level of the operation or maintenance of any of its properties or any of
those of its Restricted Subsidiaries if such discontinuance is, in the
reasonable judgment of the Borrower, desirable in the conduct of its or their
business and that do not in the aggregate materially adversely affect the
business of the Borrower and its Restricted Subsidiaries on a consolidated
basis. Specifically, but not in limitation of the foregoing, the Borrower and
each Restricted Subsidiary will maintain such an appropriate FRA Class rating on
its railroad lines as is reasonable and prudent in light of all the relevant
facts and circumstances.
8.7. Insurance. The Borrower will, and will cause each of its
---------
Restricted Subsidiaries to, maintain with financially sound and reputable
insurers insurance with respect to their properties and business against such
casualties and contingencies as shall be in accordance with the general
practices of businesses engaged in similar activities in similar geographic
areas and in amounts, containing such terms, in such forms and for such periods
as described on Schedule 8.7 hereto and as may be reasonable and prudent.
------------
8.8. Taxes. The Borrower will, and will cause each of its Restricted
-----
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; provided that any such tax,
--------
<PAGE>
-53-
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Borrower or such Restricted Subsidiary shall have set aside on its
books adequate reserves with respect thereto; and provided further that the
Borrower and each Restricted Subsidiary of the Borrower will pay all such taxes,
assessments, charges, levies or claims forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security therefor.
8.9. Inspection of Properties and Books, etc.
---------------------------------------
8.9.1. General. The Borrower shall permit the Banks,
-------
through the Agent or any of the Banks' other designated
representatives, to visit and inspect any of the properties of the
Borrower or any of its Restricted Subsidiaries, to examine the books
of account of the Borrower and its Restricted Subsidiaries (and to
make copies thereof and extracts therefrom), and to discuss the
affairs, finances and accounts of the Borrower and its Restricted
Subsidiaries with, and to be advised as to the same by, its and their
officers, all at such reasonable times and intervals as the Agent or
any Bank may reasonably request.
8.9.2. Communications with Accountants. The Borrower
-------------------------------
authorizes the Agent and, if accompanied by the Agent, the Banks to
communicate directly with the Borrower's independent certified public
accountants and authorizes such accountants to disclose to the Agent
and the Banks any and all financial statements and other supporting
financial documents and schedules including copies of any management
letter with respect to the business, financial condition and other
affairs of the Borrower or any of its Restricted Subsidiaries. At the
request of the Agent, the Borrower shall deliver a letter addressed
to such accountants instructing them to comply with the provisions of
this ss.8.9.2.
8.10. Compliance with Laws, Contracts, Licenses, and Permits. The
------------------------------------------------------
Borrower will, and will cause each of its Restricted Subsidiaries to, comply
with (i) the applicable laws and regulations wherever its business is conducted,
including all Environmental Laws, (ii) the provisions of its charter documents
and by-laws, (iii) all material agreements and instruments by which it or any of
its properties may be bound and (iv) all applicable decrees, orders, and
judgments. If any authorization, consent, approval, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that the Borrower or any of its Restricted Subsidiaries may
fulfill any of its obligations hereunder or any of the other Loan Documents to
which the Borrower or such Restricted Subsidiary is a party, the Borrower will,
or (as the case may be) will cause such Restricted Subsidiary to, immediately
take or cause to be taken all reasonable steps within the power of the Borrower
or such Restricted Subsidiary to obtain such authorization, consent, approval,
permit or license and furnish the Agent and the Banks with evidence thereof.
<PAGE>
-54-
8.11. Employee Benefit Plans. The Borrower will (i) within three (3)
----------------------
days of receipt of a written request by the Agent, furnish to the Agent a copy
of the most recent actuarial statement required to be submitted under ss.103(d)
of ERISA and Annual Report, Form 5500, with all required attachments, in respect
of each Guaranteed Pension Plan and (ii) within three (3) days of receipt or
dispatch, furnish to the Agent any notice, report or demand sent or received in
respect of a Guaranteed Pension Plan under ss.ss.302, 4041, 4042, 4043, 4063,
4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under
ss.ss.4041A, 4202, 4219, 4242, or 4245 of ERISA.
8.12. Use of Proceeds. The Borrower will use the proceeds of the
---------------
Loans and will obtain Letters of Credit solely for the purposes set forth in
ss.7.16 hereof.
8.13. Further Assurances. The Borrower will, and will cause each of
------------------
its Restricted Subsidiaries to, cooperate with the Banks and the Agent and
execute such further instruments and documents as the Banks or the Agent shall
reasonably request to carry out to their satisfaction the transactions
contemplated by this Credit Agreement and the other Loan Documents. At the
request of the Agent, the Borrower shall deliver to the Agent and the Banks a
legal opinion in form and substance satisfactory to the Agent opining as to the
authorization, validity and enforceability of the Guaranty with respect to
Switching.
8.14. Additional Restricted Subsidiaries. The Borrower shall cause
----------------------------------
each Restricted Subsidiary created or acquired after the Closing Date to execute
and deliver to the Agent for the benefit of the Banks, the Issuing Bank and the
Agent, an Instrument of Adherence (Guaranty), in substantially the form of
Exhibit D hereto (an "Instrument of Adherence (Guaranty)"), whereby such
- ------- -
Subsidiary becomes a party to the Guaranty, together with legal opinions in form
and substance satisfactory to the Agent to be delivered to the Agent and the
Banks opining as to the authorization, validity and enforceability of such
Guaranty, and as to such other matters as the Agent may request. In addition,
the Borrower shall immediately upon the acquisition or creation of any new
Subsidiary, notify the Banks thereof and provide the Agent and the Banks with an
updated Schedule 7.19 hereto to reflect the formation or acquisition of each new
Subsidiary. Notwithstanding the other provisions of this ss.8.14, any Restricted
Subsidiary in which the Borrower or any of its Restricted Subsidiaries have
collectively invested less than $100,000 shall not be required to become a party
to the Guaranty. In the event that Kittanning's assets ever have a fair market
value in excess of $100,000, Kittanning shall become a Restricted Subsidiary
hereunder, the Borrower shall cause Kittanning to become a Guarantor hereunder
and shall cause Kittanning to comply with the provisions of this ss.8.14.
9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
-------------------------------------------
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Revolving Credit Note is
<PAGE>
-55-
outstanding or any Bank has any obligation to make any Loans or the Issuing Bank
has any obligations to issue, extend or renew any Letters of Credit:
9.1. Restrictions on Indebtedness. The Borrower will not, and will
----------------------------
not permit any of its Restricted Subsidiaries to, create, incur, assume,
guarantee or be or remain liable, contingently or otherwise, with respect to any
Indebtedness other than:
(a) Indebtedness to the Banks, the Issuing Bank and the
Agent arising under any of the Loan Documents;
(b) current liabilities of the Borrower or such Restricted
Subsidiary incurred in the ordinary course of business not incurred
through (i) the borrowing of money, or (ii) the obtaining of credit
except for credit on an open account basis customarily extended and
in fact extended in connection with normal purchases of goods and
services;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of ss.8.8;
(d) Indebtedness in respect of judgments or awards that
have been in force for less than the applicable period for taking an
appeal so long as execution is not levied thereunder or in respect of
which the Borrower or such Restricted Subsidiary shall at the time in
good faith be prosecuting an appeal or proceedings for review and in
respect of which a stay of execution shall have been obtained pending
such appeal or review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(f) Indebtedness in respect of the CSX Remaining Debt,
provided that the aggregate principal amount of such Indebtedness
shall not exceed $8,922,105;
(g) Indebtedness of the Borrower or any of its Restricted
Subsidiaries to the Borrower or any of the other Restricted
Subsidiaries consisting of rights of reimbursement, contribution,
subrogation and the like in connection with the joint and several
obligations of the Restricted Subsidiaries under the Loan Documents;
(h) Indebtedness incurred or assumed in connection with the
acquisition after the date hereof of any real or personal property by
the Borrower or such Restricted Subsidiary (including Indebtedness in
respect of Capitalized Leases), provided that the aggregate principal
--------
amount of such Indebtedness of the Borrower and its Restricted
<PAGE>
-56-
Subsidiaries shall not exceed the aggregate amount of $15,000,000 at
any one time;
(i) Indebtedness existing on the date hereof and listed and
described on Schedule 9.1 hereto;
(j) Indebtedness of the Borrower to any of the Guarantors
or any of the Guarantors to the Borrower or any of the other
Guarantors;
(k) Indebtedness of the Borrower to any of the Banks with
respect to interest rate protection arrangements;
(l) Indebtedness in respect of performance, surety,
statutory, insurance, appeal or similar bonds obtained in the
ordinary course of business;
(m) Indebtedness of the Borrower and its Restricted
Subsidiaries in respect of operating leases;
(n) Indebtedness in respect of the Bridge Rehabilitation
Project, provided that the aggregate principal amount of such
Indebtedness shall not exceed $900,000;
(o) Indebtedness under the Willamette Valley Note not to
exceed $400,000 in principal amount outstanding at any time;
(p) Indebtedness of the Borrower, IMR and WPR in respect of
their guaranty of the obligations outstanding on or before September
30, 1998 of Leasing under the Apus Railcar Lease;
(q) Indebtedness of the Borrower or any of its Restricted
Subsidiaries in respect of guaranties of obligations in connection
with Permitted Acquisitions and other Investments permitted by
ss.9.3(i), (j) and (m) or the operation of any of its Restricted
Subsidiaries (in each case, to the extent the underlying Indebtedness
with respect thereto is otherwise permitted under this ss.9.1), not
to exceed $10,000,000 in aggregate amount at any time; and
(r) other Indebtedness not included in the foregoing
provisions of this ss.9.1 not to exceed $1,000,000 in the aggregate
at any time outstanding.
9.2. Restrictions on Liens. The Borrower will not, and will not
---------------------
permit any of its Restricted Subsidiaries to, (i) create or incur or suffer to
be created or incurred or to exist any lien, encumbrance, mortgage, pledge,
charge, restriction or other security interest of any kind upon any of their
property or assets of any character whether now owned or hereafter acquired, or
upon the income or profits therefrom; (ii) transfer any of such property or
assets or the income or
<PAGE>
-57-
profits therefrom for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to payment of
its general creditors; (iii) acquire, or agree or have an option to acquire, any
property or assets upon conditional sale or other title retention or purchase
money security agreement, device or arrangement; (iv) suffer to exist for a
period of more than thirty (30) days after the same shall have been incurred any
Indebtedness or claim or demand against it that if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors; or (v) sell, assign, pledge or otherwise transfer any
accounts, contract rights, general intangibles, chattel paper or instruments,
with or without recourse; provided that the Borrower and any Restricted
Subsidiary may create or incur or suffer to be created or incurred or to exist:
(a) liens in favor of the Borrower on all or part of the
assets of Subsidiaries of the Borrower securing Indebtedness owing by
Subsidiaries of the Borrower to the Borrower;
(b) liens to secure taxes, assessments and other government
charges in respect of obligations not overdue or liens on properties
to secure claims for labor, material or supplies in respect of
obligations not overdue;
(c) deposits or pledges made in connection with, or to
secure payment of, workmen's compensation, unemployment insurance,
old age pensions or other social security obligations;
(d) liens on properties in respect of judgments or awards,
the Indebtedness with respect to which is permitted by ss.9.1(d);
(e) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties, in existence less
than 120 days from the date of creation thereof in respect of
obligations not overdue;
(f) encumbrances on Real Estate consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real
property and defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which the Borrower or
any of its Restricted Subsidiaries is a party, and other minor liens
or encumbrances none of which in the opinion of the Borrower
interferes materially with the use of the property affected in the
ordinary conduct of the business of the Borrower and its Restricted
Subsidiaries, which defects do not individually or in the aggregate
have a materially adverse effect on the business of the Borrower
individually or of the Borrower and its Restricted Subsidiaries on a
consolidated basis;
(g) liens existing on the date hereof and listed on
Schedule 9.2 hereto;
<PAGE>
-58-
(h) purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof
to secure purchase money Indebtedness of the type and amount
permitted by ss.9.1(h), incurred or assumed in connection with the
acquisition of such property, which security interests or mortgages
cover only the real or personal property so acquired;
(i) the CSX Mortgages and the CSX Security Agreements
solely to the extent that the CSX Remaining Debt is permitted under
ss.9.1(f);
(j) liens consisting of deposits to secure Indebtedness
permitted by ss.9.1(l) hereof;
(k) liens to secure Indebtedness permitted by ss.9.1(n)
hereof;
(l) liens on the rights of WPR under Section 14.05 of its
lease with Southern Pacific Transportation Company dated as of
12/30/92 to secure Indebtedness permitted by ss.9.1(o) hereof; and
(m) (i) liens on the equipment, fixtures and improvements
of the Borrower and its Restricted Subsidiaries placed in or upon the
premises leased pursuant to the Corpus Christi Lease, provided that
the Borrower or any Restricted Subsidiary shall not make expenditures
with respect to such equipment, fixtures and improvements with
respect to such premises in excess of $300,000 and (ii) liens of the
Port of Corpus Christi Authority of Nueces County, Texas on the two
locomotives owned by Rail Link, Inc. and numbered as RLIX 547 and
RLIX 475.
9.3. Restrictions on Investments. The Borrower will not, and will not
---------------------------
permit any of its Restricted Subsidiaries to, make or permit to exist or to
remain outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the
United States of America that mature within one (1) year from the
date of purchase by a Borrower;
(b) demand deposits, certificates of deposit, bankers
acceptances and time deposits of United States banks having total
assets in excess of $1,000,000,000;
(c) securities commonly known as "commercial paper" issued
by a corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase
have been rated and the ratings for which are not less than "P 1" if
rated by Moody's Investors Services, Inc., and not less than "A 1" if
rated by Standard and Poor's;
<PAGE>
-59-
(d) Investments existing on the date hereof and listed on
Schedule 9.3 hereto;
-------- ---
(e) Investments with respect to Indebtedness permitted by
ss.9.1(j) so long as such entities remain Restricted Subsidiaries of
the Borrower;
(f) Investments by the Borrower in any of the Guarantors;
(g) Investments consisting of loans and advances to
employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business not to exceed $250,000 in
the aggregate at any time outstanding;
(h) Investments by the Borrower or any of its Restricted
Subsidiaries in the Borrower or any of the other Restricted
Subsidiaries consisting of rights of reimbursement, contribution,
subrogation and the like in connection with the joint and several
obligations of the Restricted Subsidiaries under the Loan Documents;
(i) Investments by the Borrower and its Restricted
Subsidiaries in GWIA in an aggregate amount not to exceed $14,000,000
at any time;
(j) Investments by the Borrower and its Restricted
Subsidiaries in GRO in an aggregate amount not to exceed $5,000,000
at any time; and
(k) Investments constituting or made in connection with
acquisitions by the Borrower or any Restricted Subsidiary of the
Borrower (with the proceeds of a capital contribution from the
Borrower or otherwise) of any other Person, or of any business,
division or operating unit of any other Person (whether by way of a
purchase of assets or capital stock) (each such acquisition
satisfying all the conditions and requirements of this paragraph (k)
being referred to herein as a "Permitted Acquisition"); provided
--------
that:
(i) the aggregate Purchase Price for (A) any one
Permitted Acquisition (or group of related acquisitions)
shall not exceed $25,000,000 and (B) all such Permitted
Acquisitions shall not exceed $50,000,000 in any period of
twelve consecutive months;
(ii) the Borrower shall have demonstrated to the
reasonable satisfaction of the Agent (based on, among other
things, operating and financial projections and pro forma
financial statements delivered to the Agent and certified
by the chief financial officer of the Borrower) that, after
giving pro-forma effect to the Permitted Acquisition and
the incurrence of any Indebtedness in connection therewith,
all covenants (including all covenants contained in ss.10)
contained herein (1) would have been satisfied on a Pro
Forma Basis as at the end of and for the most recent fiscal
quarter, and
<PAGE>
-60-
(2) will be satisfied on a Pro Forma Basis for the next
four fiscal quarters ending after the date of such
Investment;
(iii) with respect to any such Permitted
Acquisition:
(A) the Borrower shall have delivered
to the Agent and the Banks reasonable (and, in
any event, fifteen (15) days) prior written
notice of such acquisition, which notice shall
provide the Agent with a reasonably detailed
description of the proposed acquisition, and
shall include true and complete copies of (to the
extent available at such time but in any event
prior to the closing of any such Permitted
Acquisition) all instruments and agreements
executed or delivered or to be executed or
delivered by the Borrower or any of its
Restricted Subsidiaries in connection with such
acquisition, all of which shall be reasonably
satisfactory in form and substance to the Agent;
(B) the business and assets so
acquired shall be acquired by the Borrower or any
of its Restricted Subsidiaries free and clear of
all Liens (other than Permitted Liens) and
Indebtedness (other than Indebtedness permitted
by ss.9.1 or otherwise consented to in writing by
the Majority Banks) and the business so acquired
shall be substantially the same line of business
as that presently conducted by the Borrower and
its Restricted Subsidiaries or lines of business
reasonably related thereto;
(C) no contingent obligations or
liabilities will be incurred or assumed in
connection with such acquisition which could
reasonably be expected to have a material adverse
effect on the business or financial condition of
the Borrower and its Restricted Subsidiaries,
taken as a whole;
(D) in the case of any acquisition of
capital stock, the acquired Person shall become a
Restricted Subsidiary of the Borrower (or of any
Restricted Subsidiary of the Borrower) or shall
be merged with and into the Borrower or any
Restricted Subsidiary; and the Borrower or the
applicable Restricted Subsidiary and such
acquired Person shall have complied with all the
applicable provisions of ss.8.14;
(iv) no Default or Event of Default shall exist
immediately prior to such Permitted Acquisition or would
result from such Permitted Acquisition and provided further
--------
that if such Permitted Acquisition would result in a change
in control of the acquired Person, such Investment shall
have been approved by the board of directors of such Person
prior to the making of such Investment;
<PAGE>
-61-
(v) all computations required to satisfy the
conditions specified in subparagraphs (i), (ii) and (iv)
above shall be reasonably satisfactory to the Agent; and
(vi) with respect to any Permitted Acquisition,
any debt instruments or preferred stock evidencing,
governing or issued in connection with such Investment
shall be reasonably satisfactory to the Agent and shall be
permitted by this Credit Agreement;
(l) Investments consisting of deposits made in connection
with a Permitted Acquisition; or
(m) Investments not otherwise permitted by this ss.9.3 in
an aggregate amount not to exceed $10,000,000 at any time.
9.4. Distributions and Restricted Payments. The Borrower will not,
-------------------------------------
and will not permit any of its Restricted Subsidiaries to, make any Restricted
Payments, provided however that (i) the Borrower's Restricted Subsidiaries may
make Distributions to the Borrower or other Restricted Subsidiaries and (ii) so
long as no Default or Event of Default shall have occurred and be continuing,
and so long as none would result after giving effect thereto the Borrower may
make Restricted Payments in an aggregate amount for all such Restricted Payments
by the Borrower not to exceed, during any period of four consecutive quarters,
the lesser of (A) $5,000,000 and (B) fifty percent (50%) of Consolidated Net
Income for the period of four consecutive fiscal quarters most recently ended.
9.5. Merger, Acquisitions and Disposition of Assets.
----------------------------------------------
9.5.1. Mergers and Acquisitions. The Borrower will not, and
------------------------
will not permit any of its Restricted Subsidiaries to, become a party
to any merger or consolidation other than the merger or consolidation
of (i) a Restricted Subsidiary into any other Restricted Subsidiary,
(ii) one or more of the Restricted Subsidiaries of the Borrower with
and into the Borrower, or (iii) two or more Restricted Subsidiaries
of the Borrower. The Borrower will not, and will not permit any of
its Restricted Subsidiaries to, agree to or effect any asset
acquisition or stock acquisition except (a) the acquisition of assets
in the ordinary course of business consistent with past practices;
(b) Capital Expenditures, provided that no Default or Event of
Default has occurred and is continuing prior to or immediately after
giving effect to such Capital Expenditure; and (c) Permitted
Acquisitions.
9.5.2. Disposition of Assets. The Borrower will not, and
---------------------
will not permit any of its Restricted Subsidiaries to, become a party
to or agree to or effect any disposition of assets, other than the
disposition of assets in the ordinary course of business, consistent
with past practices, and sale-leasebacks to the extent permitted
under ss.9.6. Notwithstanding the
<PAGE>
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foregoing, if no Default or Event of Default exists or will occur as
a result of such disposition, (i) Leasing may exchange railcars with
Apus Rail One, Inc. pursuant to the Exchange Agreement and (ii) the
Borrower and its Restricted Subsidiaries may lease, sell or otherwise
dispose of, for cash, assets provided that the aggregate net book
value (at the time of disposition thereof and after giving effect to
the contemplated disposition) of all such assets shall not exceed
$5,000,000 during any period of twelve consecutive months.
9.6. Sale and Leaseback. The Borrower will not, and will not permit
------------------
any of its Restricted Subsidiaries to, enter into any arrangement, directly or
indirectly, whereby the Borrower or any Restricted Subsidiary of the Borrower
shall sell or transfer any property owned by it in order then or thereafter to
lease such property or lease other property that the Borrower or any Restricted
Subsidiary of the Borrower intends to use for substantially the same purpose as
the property being sold or transferred, provided that the Borrower or any of its
Restricted Subsidiaries may enter into such sale-leaseback transactions to the
extent that the aggregate net book value (at the time of disposition thereof and
after giving effect to the contemplated disposition) of the assets sold in
connection with all such sale-leasebacks does not exceed $10,000,000 at any
time.
9.7. Compliance with Environmental Laws. Except in compliance with
----------------------------------
all applicable Environmental Laws, the Borrower will not, and will not permit
any of its Restricted Subsidiaries to, (i) use any of the Real Estate or any
portion thereof for the handling, processing, storage or disposal of Hazardous
Substances, (ii) cause or permit to be located on any of the Real Estate any
underground tank or other underground storage receptacle for Hazardous
Substances, (iii) generate any Hazardous Substances on any of the Real Estate,
(iv) conduct any activity at any Real Estate or use any Real Estate in any
manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping) or threatened release of Hazardous Substances on, upon or
into the Real Estate or (v) otherwise conduct any activity at any Real Estate or
use any Real Estate in any manner that would violate any Environmental Law or
bring such Real Estate in violation of any Environmental Law.
9.8. CSX Remaining Debt. The Borrower will not, and will not permit
------------------
any of its Restricted Subsidiaries to, amend, supplement or otherwise modify the
terms of the CSX Remaining Debt, the CSX Security Agreements or the CSX
Mortgages; provided, however, that the Borrower and its Restricted Subsidiaries
may prepay the CSX Remaining Debt on substantially the terms described in its
business plan delivered to the Banks prior to the Closing Date and as is
otherwise acceptable to the Agent, unless such terms materially deviate from
such business plan, in which case the consent of the Majority Banks will be
required prior to any prepayment of the CSX Remaining Debt.
<PAGE>
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9.9. Employee Benefit Plans. Neither the Borrower nor any ERISA
----------------------
Affiliate will
(a) engage in any "prohibited transaction" within the
meaning of ss.406 of ERISA or ss.4975 of the Code which could result
in a material liability for the Borrower or any of its Restricted
Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an
"accumulated funding deficiency", as such term is defined in ss.302
of ERISA, whether or not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could result in the imposition of a lien or encumbrance on the
assets of the Borrower or any of its Restricted Subsidiaries pursuant
to ss.302(f) or ss.4068 of ERISA; or
(d) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of ss.4001 of ERISA)
of all Guaranteed Pension Plans exceeding the value of the aggregate
assets of such Plans, disregarding for this purpose the benefit
liabilities and assets of any such Plan with assets in excess of
benefit liabilities, by more than $200,000.
9.10. Business Activities. The Borrower will not, and will not permit
-------------------
any of its Restricted Subsidiaries, to engage directly or indirectly (whether
through Subsidiaries or otherwise) in any type of business not engaged in by the
Borrower or its Restricted Subsidiaries on the Closing Date, unless incidental
or related to any type of business engaged in by the Borrower or its Restricted
Subsidiaries on such date.
9.11. Capitalization. The Borrower will not, and will not permit any
--------------
of its Restricted Subsidiaries to, authorize, issue or sell any capital stock or
partnership interests, grant any options, warrants or other rights to purchase
any capital stock or in any way change the capitalization of any of the
Restricted Subsidiaries in such a manner as to cause the Borrower to own
directly or indirectly less than one hundred percent of the capital stock or
partnership interests, as the case may be, of each of the Restricted
Subsidiaries. The Borrower will not issue any capital stock having debt-like
features (such as mandatory cash dividends, mandatory redemption provisions or
other provisions which create monetary obligations on the Borrower payable in
cash during a period when Loans may be outstanding) except to the extent that
such capital stock, if classified as Indebtedness of the Borrower, would be
permitted by ss.9.1 hereof.
9.12. Fiscal Year. The Borrower will not, and will not permit its
-----------
Restricted Subsidiaries to, change the date of the end of their fiscal year from
that set forth in ss.7.20 hereof.
<PAGE>
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9.13. Negative Pledges. Neither the Borrower nor any of its
----------------
Restricted Subsidiaries will enter into any agreement (excluding this Credit
Agreement and the Loan Documents) prohibiting the creation or assumption of any
lien upon its properties, revenues or assets or those of any of its Restricted
Subsidiaries whether now owned or hereafter acquired other than agreements with
Persons prohibiting any such lien on assets in which such Person has a prior
security interest which is permitted by ss.9.2.
9.14. Transactions with Affiliates. The Borrower will not, and will
----------------------------
not permit any of its Restricted Subsidiaries to, engage in any transaction with
any Affiliate (other than (i) for services as employees, officers and directors
and (ii) stock options awarded to employees and directors pursuant to incentive
compensation plans operated by the Borrower involving not more than 15% of the
common stock of the Borrower), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such Affiliate or, to the knowledge of the Borrower, any
corporation, partnership, trust or other entity in which any such Affiliate has
a substantial interest or is an officer, director, trustee or partner, on terms
more favorable to such Person than would have been obtainable on an arm's-length
basis in the ordinary course of business.
10. FINANCIAL COVENANTS OF THE BORROWER.
-----------------------------------
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Revolving Credit Note is
outstanding or any Bank has any obligation to make any Loans or the Issuing Bank
has any obligation to issue, extend or renew any Letters of Credit:
10.1. Funded Debt to EBITDA. The Borrower will not permit the Funded
---------------------
Debt to EBITDA Ratio at any time during any period described in the table set
forth below to exceed the ratio set forth opposite such period in such table:
Period Ratio
------ -----
Closing Date - December 30, 1999 3.50:1.00
December 31, 1999 - December 30, 2000 3.00:1.00
December 31, 2000 - December 30, 2001 2.75:1.00
December 31, 2001 and thereafter 2.25:1.00
10.2. Cash Flow Coverage. The Borrower will not permit the ratio of
------------------
(a) Consolidated Cash Flow (determined at the end of each fiscal quarter for the
four consecutive fiscal quarters then ended) to (b) the sum of (i) Consolidated
Total Interest Expense for such period, plus (ii) all regularly scheduled
payments required to be made during such period in respect of principal on
long-term Consolidated Funded Debt (other than principal payments on the CSX
Remaining Debt made with the proceeds of a refinancing of the CSX Remaining
<PAGE>
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Debt on terms satisfactory to the Agent and the Majority Banks) to be less than
1.25:1.00.
10.3. EBITDA less Capital Expenditures to Interest Ratio. As at the
--------------------------------------------------
end of each fiscal quarter of the Borrower, the Borrower will not permit the
ratio of (a) the result of (i) Consolidated EBITDA for the preceding four
consecutive fiscal quarters, minus (ii) the amount of Capital Expenditures made
by the Borrower and its Restricted Subsidiaries during such period to (b)
Consolidated Total Interest Expense for such period during any period described
in the table set forth below to be less than the ratio set forth opposite such
period in such table:
Period Ratio
------ -----
Closing Date - December 30, 1999 2.00:1.00
December 31, 1999 - December 30, 2001 2.25:1.00
December 31, 2001 and thereafter 2.50:1.00
10.4. Calculation of Financial Covenants. To the extent a Permitted
----------------------------------
Acquisition has occurred in any period being tested in the covenants contained
in this ss.10, the calculations of such covenants, to the extent applicable,
will be tested on a Pro Forma Basis.
11. CLOSING CONDITIONS.
------------------
From and after the Closing Date, all of the obligations of the
Borrower and its Subsidiaries under or in respect of the Prior Credit Agreement
shall be evidenced solely by the terms of this Credit Agreement and the other
Loan Documents. The obligations of the Banks to convert their claims against the
Borrower and its Subsidiaries with respect to the Prior Credit Agreement into
Obligations under this Credit Agreement, to amend and restate the Prior Credit
Agreement and to make the initial Loans and the Issuing Bank to convert any
existing letters of credit into Letters of Credit under this Credit Agreement
and issue any initial Letters of Credit shall be subject to the satisfaction of
the following conditions precedent on or prior to the Closing Date.
11.1. Loan Documents. Each of the Loan Documents shall have been duly
--------------
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully executed copy of each such document.
11.2. Certified Copies of Charter and Partnership Documents. Each of
-----------------------------------------------------
the Banks shall have received from the Borrower and each of its Restricted
Subsidiaries either a copy, certified by a duly authorized officer of such
Person to be true and complete on the Closing Date, of each of (i) its charter,
certificate of limited partnership or other organizational documents as in
effect on such date of certification, and (ii) its by-laws or partnership
agreement, as applicable, as in effect on such date or a certificate from a duly
<PAGE>
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authorized officer of such Person stating that no amendments, modification,
revisions or other changes have been made since the most recent delivery of such
documents to the Agent under the Prior Credit Agreement and that such documents
are in full force and effect as of the Closing Date.
11.3. Corporate or Other Action. All corporate or other action
-------------------------
necessary for the valid execution, delivery and performance by the Borrower and
each of its Restricted Subsidiaries of this Credit Agreement and the other Loan
Documents to which it is or is to become a party shall have been duly and
effectively taken, and evidence thereof satisfactory to the Banks shall have
been provided to each of the Banks.
11.4. Incumbency Certificate. Each of the Banks shall have received
----------------------
from the Borrower and each of its Restricted Subsidiaries an incumbency
certificate, dated as of the Closing Date, signed by a duly authorized officer
of such Borrower or such Subsidiary, and giving the name and bearing a specimen
signature of each individual who shall be authorized: (i) to sign, in the name
and on behalf of each of the Borrower or such Restricted Subsidiary, each of the
Loan Documents to which the Borrower or such Restricted Subsidiary is or is to
become a party; (ii) in the case of the Borrower, to make Loan Requests and
Conversion Requests and to apply for Letters of Credit; and (iii) to give
notices and to take other action on its behalf under the Loan Documents.
11.5. Opinion of Counsel. Each of the Banks and the Agent shall have
------------------
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of the Closing Date, in form and substance satisfactory to the Banks and the
Agent, from:
(a) Harter, Secrest & Emery, counsel to the Borrower and
its Restricted Subsidiaries; and
(b) local counsel to certain Restricted Subsidiaries in the
state of Virginia.
11.6. Delivery of Agreements. The Borrower and its Restricted
----------------------
Subsidiaries shall have delivered to the Agent copies of the Corpus Christi
Lease, the Apus Railcar Lease and the Exchange Agreement.
11.7. Payment of Fees. The Borrower shall have paid to the Agent all
---------------
fees pursuant to ss.5.1 and all interest and fees under the Prior Credit
Agreement in accordance with ss.28.3 hereof. The Borrower shall have reimbursed
the Agent for, or paid directly, all fees, costs and expenses incurred by the
Agent's Special Counsel in connection with the closing of the transactions
contemplated hereby.
11.8. Certain Assignments. The Banks (as defined in the Prior Credit
-------------------
Agreement) shall have assigned such interest, rights and obligations under the
Prior Credit Agreement to the Banks hereunder as shall be necessary to achieve
the Commitment Percentages set forth herein.
<PAGE>
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11.9. Disbursement Instructions. The Agent shall have received an
-------------------------
initial Loan Request and disbursement instructions from the Borrower.
12. CONDITIONS TO ALL BORROWINGS.
----------------------------
The obligations of the Banks to convert their claims against the
Borrower and its Restricted Subsidiaries with respect to the Prior Credit
Agreement into Obligations under this Credit Agreement and to make any Loan, and
the Issuing Bank to convert any existing letters of credit into Letters of
Credit under this Credit Agreement or to issue, extend or renew any Letter of
Credit, in each case whether on or after the Closing Date, shall also be subject
to the satisfaction of the following conditions precedent:
12.1. Representations True; No Event of Default. Each of the
-----------------------------------------
representations and warranties of the Borrower and its Restricted Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date as of which they were made and shall also be true
at and as of the time of the making of such Loan or the issuance, extension or
renewal of such Letter of Credit, with the same effect as if made at and as of
that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement and the other Loan Documents
and changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.
12.2. No Legal Impediment. No change shall have occurred in any law
-------------------
or regulations thereunder or interpretations thereof that in the reasonable
opinion of any Bank would make it illegal for such Bank to make such Loan or to
participate in the issuance, extension or renewal of such Letter of Credit or in
the reasonable opinion of the Agent would make it illegal for the Agent to
issue, extend or renew such Letter of Credit.
12.3. Governmental Regulation. Each Bank shall have received such
-----------------------
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
12.4. Proceedings and Documents. All proceedings in connection with
-------------------------
the transactions contemplated by this Credit Agreement, the other Loan Documents
and all other documents incident thereto shall be satisfactory in substance and
in form to the Banks and to the Agent and the Agent's Special Counsel, and the
Banks, the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Agent may reasonably request.
<PAGE>
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13. EVENTS OF DEFAULT; ACCELERATION; ETC.
------------------------------------
13.1. Events of Default and Acceleration. If any of the following
----------------------------------
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(a) the Borrower shall fail to pay any principal of the
Loans or any Reimbursement Obligation when the same shall become due
and payable, whether at the stated date of maturity or any
accelerated date of maturity or at any other date fixed for payment;
(b) the Borrower or any of its Restricted Subsidiaries
shall fail to pay any interest on the Loans, the commitment fee, any
Letter of Credit Fee, the Agent's Fees, or other sums due hereunder
or under any of the other Loan Documents, when the same shall become
due and payable, whether at the stated date of maturity or any
accelerated date of maturity or at any other date fixed for payment,
and such failure shall continue for three (3) days;
(c) the Borrower or any of its Restricted Subsidiaries
shall fail to comply with any of the covenants contained in ss.ss.8,
9 or 10;
(d) the Borrower or any of its Restricted Subsidiaries
shall fail to perform any term, covenant or agreement contained
herein or in any of the other Loan Documents (other than those
specified elsewhere in this ss.13.1) for fifteen (15) days after
written notice of such failure has been given to the Borrower by the
Agent;
(e) any representation or warranty of the Borrower or any
of its Restricted Subsidiaries in this Credit Agreement or any of the
other Loan Documents or in any other document or instrument delivered
pursuant to or in connection with this Credit Agreement shall prove
to have been false in any material respect upon the date when made or
deemed to have been made or repeated;
(f) the Borrower or any of its Restricted Subsidiaries
shall fail to pay at maturity, or within any applicable period of
grace, any obligation for borrowed money or credit received
(including the CSX Remaining Debt) or in respect of any Capitalized
Leases, or fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound, evidencing
or securing borrowed money or credit received (including without
limitation, the CSX Remaining Debt) or in respect of any Capitalized
Leases for such period of time as would permit (assuming the giving
of appropriate notice if required) the holder or holders thereof or
of any obligations issued thereunder to accelerate the maturity
thereof;
<PAGE>
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(g) the Borrower or any of its Restricted Subsidiaries
shall make an assignment for the benefit of creditors, or admit in
writing its inability to pay or generally fail to pay its debts as
they mature or become due, or shall petition or apply for the
appointment of a trustee or other custodian, liquidator or receiver
of the Borrower or any of its Restricted Subsidiaries or of any
substantial part of the assets of the Borrower or any of its
Restricted Subsidiaries or shall commence any case or other
proceeding relating to the Borrower or any of its Restricted
Subsidiaries under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or
similar law of any jurisdiction, now or hereafter in effect, or shall
take any action to authorize or in furtherance of any of the
foregoing, or if any such petition or application shall be filed or
any such case or other proceeding shall be commenced against the
Borrower or any of its Restricted Subsidiaries and the Borrower or
any of its Restricted Subsidiaries shall indicate its approval
thereof, consent thereto or acquiescence therein or such petition or
application shall not have been dismissed within forty-five (45) days
following the filing thereof;
(h) a decree or order is entered appointing any such
trustee, custodian, liquidator or receiver or adjudicating the
Borrower or any of its Restricted Subsidiaries bankrupt or insolvent,
or approving a petition in any such case or other proceeding, or a
decree or order for relief is entered in respect of any of the
Borrower or any Restricted Subsidiary of the Borrower in an
involuntary case under federal bankruptcy laws as now or hereafter
constituted;
(i) there shall remain in force, undischarged, unsatisfied
and unstayed, for more than thirty days, whether or not consecutive,
any final judgment against the Borrower or any of its Restricted
Subsidiaries that, with other outstanding final judgments,
undischarged, against the Borrower or any of its Restricted
Subsidiaries exceeds in the aggregate $500,000;
(j) if any of the Loan Documents shall be cancelled,
terminated, revoked or rescinded otherwise than in accordance with
the terms thereof or with the express prior written agreement,
consent or approval of the Banks, or any action at law, suit or in
equity or other legal proceeding to cancel, revoke or rescind any of
the Loan Documents shall be commenced by or on behalf of the Borrower
or any of its Restricted Subsidiaries party thereto or any of their
respective stockholders, or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to
the effect that, any one or more of the Loan Documents is illegal,
invalid or unenforceable in accordance with the terms thereof;
(k) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Majority Banks shall
have
<PAGE>
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determined in their reasonable discretion that such event reasonably
could be expected to result in liability of the Borrower or any of
its Restricted Subsidiaries to the PBGC or such Guaranteed Pension
Plan in an aggregate amount exceeding $500,000 and such event in the
circumstances occurring reasonably could constitute grounds for the
termination of such Guaranteed Pension Plan by the PBGC or for the
appointment by the appropriate United States District Court of a
trustee to administer such Guaranteed Pension Plan; or a trustee
shall have been appointed by the United States District Court to
administer such Plan; or the PBGC shall have instituted proceedings
to terminate such Guaranteed Pension Plan;
(l) the Borrower or any of its Restricted Subsidiaries
shall be enjoined, restrained or in any way prevented by the order of
any court or any administrative or regulatory agency from conducting
any material part of its business and such order shall continue in
effect for more than thirty (30) days;
(m) there shall occur any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty,
which in any such case causes, for more than fifteen (15) consecutive
days, the cessation or substantial curtailment of revenue producing
activities at any facility of the Borrower or any of its Restricted
Subsidiaries if such event or circumstance is not covered by business
interruption insurance and would have a material adverse effect on
the business or financial condition of the Borrower and its
Restricted Subsidiaries taken as a whole;
(n) there shall occur the loss, suspension or revocation
of, or failure to renew, any license or permit now held or hereafter
acquired by the Borrower or any of its Restricted Subsidiaries if
such loss, suspension, revocation or failure to renew would have a
material adverse effect on the business or financial condition of the
Borrower and its Restricted Subsidiaries taken as a whole;
(o) the Borrower or any of its Restricted Subsidiaries
shall be indicted for a state or federal crime, or any civil or
criminal action shall otherwise have been brought against the
Borrower or any of its Restricted Subsidiaries, a punishment for
which in any such case could include the forfeiture of any assets of
such Borrower or such Restricted Subsidiary having a fair market
value in excess of $500,000; or
(p) (i) the Fuller Immediate Family shall, at any time,
cease to maintain beneficial ownership and control of at least
twenty-five percent (25%) of the voting interests of the Borrower,
(ii) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the
<PAGE>
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Securities and Exchange Commission under said Act) of more than
twenty-five percent (25%) of the outstanding shares of the common
stock of the Borrower, (iii) during any prior of twelve consecutive
calendar months, individuals who were directors of the Borrower on
the first day of such period shall cease to constitute a majority of
the board of directors of the Borrower, or (iv) the Borrower shall at
any time own directly or indirectly less than 100% of the shares of
the capital stock or partnership interests, as the case may be, of
each of the Restricted Subsidiaries, as adjusted pursuant to any
stock split, stock dividend or recapitalization or reclassification
of the capital of such Person except that the Borrower may own only
454 shares of the 458 shares of the issued and outstanding capital
stock of Dansville;
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Revolving Credit Notes and the other Loan Documents and all Reimbursement
Obligations to be, and they shall thereupon forthwith become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrower; provided that in the
--------
event of any Event of Default specified in ss.ss.13.1(g) or 13.1(h), all such
amounts shall become immediately due and payable automatically and without any
requirement of notice from the Agent or any Bank.
13.2. Termination of Commitments. If any one or more of the Events of
--------------------------
Default specified in ss.ss.13.1(g) or 13.1(h) shall occur, any unused portion of
the credit hereunder shall forthwith terminate and each of the Banks shall be
relieved of all further obligations to make Loans to the Borrower and the Agent
shall be relieved of all further obligations to issue, extend or renew Letters
of Credit. If any other Event of Default shall have occurred and be continuing,
or if on any Drawdown Date or other date for issuing, extending or renewing any
Letter of Credit the conditions precedent to the making of the Loans to be made
on such Drawdown Date or (as the case may be) to issuing, extending or renewing
such Letter of Credit on such other date are not satisfied, the Agent may and,
upon the request of the Majority Banks, shall, by notice to the Borrower,
terminate the unused portion of the credit hereunder, and upon such notice being
given such unused portion of the credit hereunder shall terminate immediately
and each of the Banks shall be relieved of all further obligations to make Loans
and the Agent shall be relieved of all further obligations to issue, extend or
renew Letters of Credit. No termination of the credit hereunder shall relieve
the Borrower or any of its Restricted Subsidiaries of any of the Obligations.
13.3. Remedies. In case any one or more of the Events of Default
--------
shall have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to ss.13.1, each Bank, if owed
any amount with respect to the Loans or the Reimbursement Obligations, may, with
<PAGE>
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the consent of the Majority Banks but not otherwise, proceed to protect and
enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Bank are evidenced,
including as permitted by applicable law the obtaining of the ex parte
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Bank. No remedy herein conferred upon any Bank
or the Agent or the holder of any Revolving Credit Note or purchaser of any
Letter of Credit Participation is intended to be exclusive of any other remedy
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or any other provision of law.
14. SETOFF.
------
Regardless of the adequacy of any collateral, during the continuance
of any Event of Default, any deposits or other sums credited by or due from any
of the Banks to the Borrower and any securities or other property of the
Borrower in the possession of such Bank may be applied to or set off by such
Bank against the payment of Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees
with each other Bank that (i) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by
the Revolving Credit Notes held by such Bank or constituting Reimbursement
Obligations owed to such Bank, such amount shall be applied ratably to such
other Indebtedness and to the Indebtedness evidenced by all such Revolving
Credit Notes held by such Bank or constituting Reimbursement Obligations owed to
such Bank, and (ii) if such Bank shall receive from the Borrower, whether by
voluntary payment, exercise of the right of setoff, counterclaim, cross action,
enforcement of the claim evidenced by the Revolving Credit Notes held by, or
constituting Reimbursement Obligations owed to, such Bank by proceedings against
the Borrower at law or in equity or by proof thereof in bankruptcy,
reorganization, liquidation, receivership or similar proceedings, or otherwise,
and shall retain and apply to the payment of the Revolving Credit Notes held by,
or Reimbursement Obligations owed to, such Bank any amount in excess of its
ratable portion of the payments received by all of the Banks with respect to the
Revolving Credit Notes held by, and Reimbursement Obligations owed to, all of
the Banks, such Bank will make such disposition and arrangements with the other
Banks with respect to such excess, either by way of distribution, pro tanto
assignment of claims, subrogation or otherwise as shall result in each Bank
receiving in respect of the Revolving Credit Notes held by it or Reimbursement
Obligations owed it, its proportionate payment as contemplated by this Credit
Agreement; provided that if all or any part of such excess payment is thereafter
recovered from such Bank, such disposition and arrangements shall be
<PAGE>
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rescinded and the amount restored to the extent of such recovery, but without
interest.
15. THE AGENT.
---------
15.1. Authorization.
-------------
(a) The Agent is authorized to take such action on behalf
of each of the Banks and to exercise all such powers as are hereunder
and under any of the other Loan Documents and any related documents
delegated to the Agent, together with such powers as are reasonably
incident thereto, provided that no duties or responsibilities not
expressly assumed herein or therein shall be implied to have been
assumed by the Agent.
(b) The relationship between the Agent and each of the
Banks is that of an independent contractor. The use of the term
"Agent" is for convenience only and is used to describe, as a form of
convention, the independent contractual relationship between the
Agent and each of the Banks. Nothing contained in this Credit
Agreement nor the other Loan Documents shall be construed to create
an agency, trust or other fiduciary relationship between the Agent
and any of the Banks.
(c) As an independent contractor empowered by the Banks to
exercise certain rights and perform certain duties and
responsibilities hereunder and under the other Loan Documents, the
Agent is nevertheless a "representative" of the Banks, as that term
is defined in Article 1 of the Uniform Commercial Code, for purposes
of actions for the benefit of the Banks and the Agent with respect to
all collateral security and guaranties contemplated by the Loan
Documents. Such actions include the designation of the Agent as
"secured party", "mortgagee" or the like on all financing statements
and other documents and instruments, whether recorded or otherwise,
relating to the attachment, perfection, priority or enforcement of
any security interests, mortgages or deeds of trust in collateral
security intended to secure the payment or performance of any of the
Obligations, all for the benefit of the Banks and the Agent.
15.2. Employees and Agents. The Agent may exercise its powers and
--------------------
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine.
15.3. No Liability. Neither the Agent nor any of its shareholders,
------------
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable to any of the Banks
for any waiver, consent or approval given or any action taken, or omitted to be
<PAGE>
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taken, in good faith by it or them hereunder or under any of the other Loan
Documents, or in connection herewith or therewith, or be responsible for the
consequences of any oversight or error of judgment whatsoever, except that the
Agent or such other Person, as the case may be, shall be liable for losses due
to its willful misconduct or gross negligence.
15.4. No Representations.
------------------
15.4.1. General. The Agent shall not be responsible for the
-------
execution or validity or enforceability of this Credit Agreement, the
Revolving Credit Notes, the Letters of Credit, any of the other Loan
Documents or any instrument at any time constituting, or intended to
constitute, collateral security for the Revolving Credit Notes, or
for the value of any such collateral security or for the validity,
enforceability or collectability of any such amounts owing with
respect to the Revolving Credit Notes, or for any recitals or
statements, warranties or representations made herein or in any of
the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of the Borrower or any of
its Restricted Subsidiaries, or be bound to ascertain or inquire as
to the performance or observance of any of the terms, conditions,
covenants or agreements herein or in any instrument at any time
constituting, or intended to constitute, collateral security for the
Revolving Credit Notes or to inspect any of the properties, books or
records of the Borrower or any of its Restricted Subsidiaries. The
Agent shall not be bound to ascertain whether any notice, consent,
waiver or request delivered to it by the Borrower or any holder of
any of the Revolving Credit Notes shall have been duly authorized or
is true, accurate and complete. The Agent has not made nor does it
now make any representations or warranties, express or implied, nor
does it assume any liability to the Banks, with respect to the credit
worthiness or financial conditions of the Borrower or any of its
Restricted Subsidiaries. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank,
and based upon such information and documents as it has deemed
appropriate, made its own credit analysis and decision to enter into
this Credit Agreement.
15.4.2. Closing Documentation, etc. For purposes of
--------------------------
determining compliance with the conditions set forth in ss.12, each
Bank that has executed this Credit Agreement shall be deemed to have
consented to, approved or accepted, or to be satisfied with, each
document and matter either sent, or made available, by the Agent or
BancBoston Securities Inc., as arranger to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to such
Bank, unless an officer of the Agent or BancBoston Securities Inc.
active upon the Borrower's account shall have received notice from
such Bank prior to the Closing Date specifying such Bank's objection
thereto and such objection shall not
<PAGE>
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have been withdrawn by notice to the Agent or BancBoston Securities
Inc. to such effect on or prior to the Closing Date.
15.5. Payments.
--------
15.5.1. Payments to Agent. A payment by the Borrower to the
-----------------
Agent hereunder or any of the other Loan Documents for the account of
any Bank or the Issuing Bank shall constitute a payment to such Bank
or the Issuing Bank. The Agent agrees promptly to distribute to each
Bank and the Issuing Bank, as the case may be, such Bank's or Issuing
Bank's pro rata share of payments received by the Agent for the
account of the Banks or the Issuing Bank except as otherwise
expressly provided herein or in any of the other Loan Documents.
15.5.2. Distribution by Agent. If in the opinion of the
---------------------
Agent the distribution of any amount received by it in such capacity
hereunder, under the Revolving Credit Notes or under any of the other
Loan Documents might involve it in liability, it may refrain from
making distribution until its right to make distribution shall have
been adjudicated by a court of competent jurisdiction. If a court of
competent jurisdiction shall adjudge that any amount received and
distributed by the Agent is to be repaid, each Person to whom any
such distribution shall have been made shall either repay to the
Agent its proportionate share of the amount so adjudged to be repaid
or shall pay over the same in such manner and to such Persons as
shall be determined by such court.
15.5.3. Delinquent Banks. Notwithstanding anything to the
----------------
contrary contained in this Credit Agreement or any of the other Loan
Documents, any Bank that fails (i) to make available to the Agent its
applicable pro rata share (if any) of any Loan or to purchase its
--- ----
applicable pro rata amount (if any) of any Letter of Credit
--- ----
Participation or (ii) to comply with the provisions of ss.15 with
respect to making dispositions and arrangements with the other Banks,
where such Bank's share of any payment received, whether by setoff or
otherwise, is in excess of its pro rata (based on all applicable
--- ----
outstanding Loans and Unpaid Reimbursement Obligations) share of such
payments due and payable to all of the Banks, in each case as, when
and to the full extent required by the provisions of this Credit
Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall
be deemed a Delinquent Bank until such time as such delinquency is
satisfied. A Delinquent Bank shall be deemed to have assigned any and
all payments due to it from the Borrower, whether on account of the
applicable outstanding Loans, Unpaid Reimbursement Obligations,
interest, fees or otherwise, to the remaining applicable
nondelinquent Banks for application to, and reduction of, their
respective applicable pro rata shares of all then applicable
--- ----
outstanding Loans and Unpaid Reimbursement Obligations so affected by
such delinquency. The Delinquent Bank hereby authorizes the Agent to
distribute such payments to the nondelinquent Banks in
<PAGE>
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proportion to their respective applicable pro rata shares of all such
--- ----
applicable outstanding Loans and Unpaid Reimbursement Obligations. A
Delinquent Bank shall be deemed to have satisfied in full a
delinquency when and if, as a result of application of the assigned
payments to all outstanding Loans and Unpaid Reimbursement
Obligations of the nondelinquent Banks so affected by such
delinquency, the applicable Banks' respective pro rata shares of all
--- ----
such applicable outstanding Loans and Unpaid Reimbursement
Obligations have returned to those in effect immediately prior to
such delinquency and without giving effect to the nonpayment causing
such delinquency.
15.6. Holders of Revolving Credit Notes. The Agent may deem and treat
---------------------------------
the payee of any Revolving Credit Note or the purchaser of any Letter of Credit
Participation as the absolute owner or purchaser thereof for all purposes hereof
until it shall have been furnished in writing with a different name by such
payee or by a subsequent holder, assignee or transferee.
15.7. Indemnity. The Banks ratably (computed by reference to each
---------
Bank's percentage of the Total Commitment) agree hereby to indemnify and hold
harmless the Agent, its affiliates and each of the Co-Agents from and against
any and all claims, actions and suits (whether groundless or otherwise), losses,
damages, costs, expenses (including any expenses for which the Agent, such
affiliate or such Co-Agent has not been reimbursed by the Borrower as required
by ss.16), and liabilities of every nature and character arising out of or
related to this Credit Agreement, the Revolving Credit Notes, or any of the
other Loan Documents or the transactions contemplated or evidenced hereby or
thereby, or the Agent's, such affiliate's or such Co-Agent's actions taken
hereunder or thereunder, except to the extent that any of the same shall be
directly caused by the Agent's, such affiliate's or such Co-Agent's willful
misconduct or gross negligence.
15.8. Agent as Bank. In its individual capacity, BKB shall have the
-------------
same obligations and the same rights, powers and privileges in respect to its
Commitment and the Loans made by it, and as the holder of any of the Revolving
Credit Notes and as the purchaser of any Letter of Credit Participations, as it
would have were it not also the Agent.
15.9. Resignation. The Agent may resign at any time by giving sixty
-----------
(60) days prior written notice thereof to the Banks and the Borrower. Upon any
such resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Ratings Group, a division of McGraw-Hill, Inc. Upon the acceptance of
<PAGE>
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any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation, the provisions of this Credit Agreement and the other Loan
Documents shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent.
15.10. Notification of Defaults and Events of Default. Each Bank
----------------------------------------------
hereby agrees that, upon learning of the existence of a Default or an Event of
Default, it shall promptly notify the Agent thereof. The Agent hereby agrees
that upon receipt of any notice under this ss.15.10 it shall promptly notify the
other Banks of the existence of such Default or Event of Default.
15.11. Duties of Co-Agents.
-------------------
The Co-Agents as such shall have no duties or responsibilities to the
Borrower, the Guarantors, the Banks, the Issuing Bank or the Agent hereunder.
16. EXPENSES.
--------
The Borrower agrees to pay (i) any taxes (including any interest and
penalties in respect thereto) payable by the Agent, the Issuing Bank, BancBoston
Securities Inc. or any of the Banks (other than taxes based upon or measured by
the Agent's or any Bank's income or profits) on or with respect to the
transactions contemplated by this Credit Agreement (the Borrower hereby agreeing
to indemnify the Agent, the Issuing Bank, BancBoston Securities Inc. and each
Bank with respect thereto), (ii) the reasonable fees, expenses and disbursements
of the Agent's Special Counsel and any local counsel to the Agent incurred in
connection with the preparation, syndication, administration or interpretation
of the Loan Documents and other instruments mentioned herein, each closing
hereunder, and amendments, modifications, approvals, consents or waivers hereto
or hereunder, provided that such counsel shall provide the Borrower with
invoices reflecting the expenses incurred in connection with the foregoing,
(iii) all reasonable out-of-pocket expenses (including without limitation
reasonable attorneys' fees and costs, which attorneys may be employees of any
Bank, the Issuing Bank or the Agent, and reasonable consulting, accounting,
appraisal, investment banking and similar professional fees and charges)
incurred by any Bank or the Agent in connection with (A) the enforcement of or
preservation of rights under any of the Loan Documents against the Borrower or
any of its Restricted Subsidiaries or the administration thereof after the
occurrence of a Default or Event of Default and (B) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to any
Bank's, the Issuing Bank's or the Agent's relationship with the Borrower or any
of its Restricted Subsidiaries except in connection with a claim that the
Borrower has against any of the Banks, the Issuing Bank and the Agent and in
which claim the Borrower is the prevailing party after entry of a final
non-appealable judgment or order, (iv) all reasonable fees, expenses and
<PAGE>
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disbursements of any Bank or the Agent incurred in connection with UCC searches,
STB searches, UCC filings or STB filings, if any, and (v) all reasonable costs
of conducting commercial finance examinations of the Borrower's properties,
including the applicable daily time charges of the Agent's commercial finance
examiners, agents, consultants and representatives engaged in such examinations
and appraisals as in effect from time to time, and reasonable out-of-pocket
travel and other related expenses provided that so long as no Default or Event
of Default has occurred and is continuing, the costs of such commercial finance
examinations shall be limited to a maximum of (A) $15,000 for the first such
examination and (B) $10,000 for each subsequent commercial finance examination.
The covenants of this ss.16 shall survive payment or satisfaction of all other
Obligations.
17. INDEMNIFICATION.
---------------
The Borrower agrees to indemnify and hold harmless the Agent, the
Issuing Bank, BancBoston Securities Inc. and the Banks from and against any and
all claims, actions and suits whether groundless or otherwise, and from and
against any and all liabilities, losses, damages and expenses of every nature
and character arising out of this Credit Agreement or any of the other Loan
Documents or the transactions contemplated hereby including, without limitation,
(i) any actual or proposed use by the Borrower or any of its Restricted
Subsidiaries of the proceeds of any of the Loans or Letters of Credit, (ii) any
actual or alleged infringement of any patent, copyright, trademark, service mark
or similar right of the Borrower or any of its Restricted Subsidiaries comprised
in the Collateral, (iii) the Borrower or any of its Restricted Subsidiaries
entering into or performing this Credit Agreement or any of the other Loan
Documents or (iv) with respect to the Borrower and its Restricted Subsidiaries
and their respective properties and assets, the violation of any Environmental
Law, the presence, disposal, escape, seepage, leakage, spillage, discharge,
emission, release or threatened release of any Hazardous Substances or any
action, suit, proceeding or investigation brought or threatened with respect to
any Hazardous Substances (including, but not limited to, claims with respect to
wrongful death, personal injury or damage to property), in each case including,
without limitation, the reasonable fees and disbursements of counsel and
allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding other than as a result of the
gross negligence or willful misconduct of the Agent, the Issuing Bank,
BancBoston Securities Inc. or any Bank. In the event that any claim is made
against the Agent, the Issuing Bank, BancBoston Securities Inc. or any Bank for
which indemnity is provided under this ss.17, the Agent, the Issuing Bank,
BancBoston Securities Inc. or such Bank shall provide prompt notice to the
Borrower of any such claim not otherwise known to the Borrower, but the failure
of the Agent, the Issuing Bank, BancBoston Securities Inc. or any Bank to
provide such notice shall not impair the liability of the Borrower with respect
to its indemnification for such claim except to the extent that the Borrower has
been actually prejudiced by such failure. In litigation, or the preparation
therefor, the Banks, the Issuing Bank, BancBoston Securities Inc. and the Agent
<PAGE>
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shall be entitled to select their own counsel and to participate in the defense
and the investigation of such claim, action or proceeding and, in addition to
the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees
and expenses of such counsel if (i) in the written opinion of counsel to the
Agent, the Issuing Bank, BancBoston Securities Inc. or any of the Banks, use of
counsel of the Borrower' choice could reasonably be expected to give rise to a
conflict of interest, (ii) the Borrower shall not have employed counsel
reasonably satisfactory to the Agent, the Issuing Bank, BancBoston Securities
Inc. and the Banks to represent the Agent and the Banks within a reasonable time
after notice of the institution of any such litigation or proceeding, (iii) the
Borrower authorizes the Agent, the Issuing Bank, BancBoston Securities Inc. and
the Banks to employ separate counsel at the Borrower's expense, or (iv) an Event
of Default has occurred and is continuing. If, and to the extent that the
obligations of the Borrower under this ss.17 are unenforceable for any reason,
the Borrower hereby agree to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under applicable law. The
covenants contained in this ss.17 shall survive payment or satisfaction in full
of all other Obligations.
18. SURVIVAL OF COVENANTS, ETC.
--------------------------
All covenants, agreements, representations and warranties made
herein, in the Revolving Credit Notes, in any of the other Loan Documents or in
any documents or other papers delivered by or on behalf of the Borrower or any
of its Restricted Subsidiaries pursuant hereto shall be deemed to have been
relied upon by the Banks, the Issuing Bank and the Agent, notwithstanding any
investigation heretofore or hereafter made by any of them, and shall survive the
making by the Banks of any of the Loans and the issuance, extension or renewal
of any Letters of Credit, as herein contemplated, and shall continue in full
force and effect so long as any Letter of Credit or any amount due under this
Credit Agreement or the Revolving Credit Notes or any of the other Loan
Documents remains outstanding or any Bank has any obligation to make any Loans
or the Agent has any obligation to issue, extend or renew any Letter of Credit,
and for such further time as may be otherwise expressly specified in this Credit
Agreement. All statements contained in any certificate or other paper delivered
to any Bank, the Issuing Bank or the Agent at any time by or on behalf of the
Borrower or any of its Restricted Subsidiaries pursuant hereto or in connection
with the transactions contemplated hereby shall constitute representations and
warranties by the Borrower or such Restricted Subsidiary hereunder.
19. ASSIGNMENT AND PARTICIPATION.
----------------------------
19.1. Conditions to Assignment by Bank. Except as provided herein,
--------------------------------
each Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Revolving Credit Loans at the time owing to it, the Revolving Credit Note
held by it and its participating interest, if any, in the risk relating to any
<PAGE>
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Letters of Credit,); provided that (i) each of the Agent and, so long as no
--------
Default or Event of Default shall have occurred and be continuing, the Borrower,
shall have given its prior written consent to such assignment, which consent
will not be unreasonably withheld, (ii) each such assignment shall be of a
constant, and not a varying, percentage of all the assigning Bank's rights and
obligations in respect of the Revolving Credit Loans, (iii) each assignment
shall be in a minimum amount of $5,000,000 (or less, if such assignment would be
of all of such Bank's interests, rights and obligations in respect of its
Commitment, Loans and Letter of Credit Participations), (iv) so long as no
Default or Event of Default shall have occurred and be continuing, BKB shall
retain an interest under this Credit Agreement, and (v) the parties to such
assignment shall execute and deliver to the Agent, for recording in the Register
(as hereinafter defined), an Assignment and Acceptance, substantially in the
form of Exhibit E hereto (an "Assignment and Acceptance"), together with any
Revolving Credit Notes subject to such assignment. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, (i) the assignee thereunder shall
be a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank
shall, to the extent provided in such assignment and upon payment to the Agent
of the registration fee referred to in ss.20.3, be released from its obligations
under this Credit Agreement. Such release shall not include any claims which the
Borrower may have against such Bank arising prior to the date of such
assignment.
19.2. Certain Representations and Warranties; Limitations; Covenants.
--------------------------------------------------------------
By executing and delivering an Assignment and Acceptance, the Borrower, the
Banks (including the assignee Bank) and the Agent confirm to and agree with each
other as to the following paragraphs (c), (e), (f), (g), (h) and (i) hereof and
the Banks (including the assignee Bank) and the Agent confirm to and agree with
each other as to the following paragraphs (a), (b) and (d); :
(a) other than the representation and warranty that it is
the legal and beneficial owner of the interest being assigned thereby
free and clear of any adverse claim, the assigning Bank makes no
representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement
or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant
hereto or the attachment, perfection or priority of any security
interest or mortgage,
(b) the assigning Bank makes no representation or warranty
and assumes no responsibility with respect to the financial condition
of the Borrower and its Restricted Subsidiaries or any other Person
primarily or secondarily liable in respect of any of the Obligations,
or the performance
<PAGE>
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or observance by the Borrower and its Restricted Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations of any of their obligations under this Credit Agreement
or any of the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto;
(c) such assignee confirms that it has received a copy of
this Credit Agreement, together with copies of the most recent
financial statements referred to in ss.7.4 and ss.8.4 and such other
documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and
Acceptance;
(d) such assignee will, independently and without reliance
upon the assigning Bank, the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under this Credit Agreement;
(e) such assignee represents and warrants that it is an
Eligible Assignee;
(f) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under
this Credit Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof or thereof, together with such
powers as are reasonably incidental thereto;
(g) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this
Credit Agreement are required to be performed by it as a Bank;
(h) such assignee represents and warrants that it is
legally authorized to enter into such Assignment and Acceptance; and
(i) such assignee acknowledges that it has made
arrangements with the assigning Bank satisfactory to such assignee
with respect to its pro rata share of Letter of Credit Fees in
--- ----
respect of outstanding Letters of Credit.
19.3. Register. The Agent shall maintain a copy of each Assignment
--------
and Acceptance delivered to it and a register or similar list (the "Register")
for the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Loans owing to and Letter of Credit
Participations purchased by, the Banks from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Banks may treat each Person whose name is recorded
in the Register as a Bank hereunder for all purposes of this Credit Agreement.
The Register shall be available for inspection by the Borrower and the Banks at
any
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reasonable time and from time to time upon reasonable prior notice. Upon each
such recordation, the assigning Bank agrees to pay to the Agent a registration
fee in the sum of $3,500.
19.4. New Revolving Credit Notes. Upon its receipt of an Assignment
--------------------------
and Acceptance executed by the parties to such assignment, together with each
Revolving Credit Note subject to such assignment, the Agent shall (i) record the
information contained therein in the Register, and (ii) give prompt notice
thereof to the Borrower and the Banks (other than the assigning Bank). Within
five (5) Business Days after receipt of such notice, the Borrower, at their own
expense, shall execute and deliver to the Agent, in exchange for each
surrendered Revolving Credit Note, a new Revolving Credit Note to the order of
such Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
has retained some portion of its obligations hereunder, a new Revolving Credit
Note to the order of the assigning Bank in an amount equal to the amount
retained by it hereunder. Such new Revolving Credit Notes shall provide that
they are replacements for the surrendered Revolving Credit Notes, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Revolving Credit Notes, shall be dated the effective date of such in
Assignment and Acceptance and shall otherwise be substantially the form of the
assigned Revolving Credit Notes. Within five (5) days of issuance of any new
Revolving Credit Notes pursuant to this ss.19.4, the Borrower shall provide a
certificate to the assignee Bank and the assignor Bank, if applicable, entitling
such Banks to rely with respect to the new Revolving Credit Notes on the
resolutions authorizing the execution and delivery of the surrendered Revolving
Credit Notes as conclusively authorizing the execution and delivery of the New
Revolving Credit Notes. The surrendered Revolving Credit Notes shall be
cancelled and returned to the Borrower.
19.5. Participations. Each Bank may sell participations to one or
--------------
more banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
that (i) each such participation shall be in an amount of not less than
$2,500,000, (ii) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (iii) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant, reduce
the amount of any commitment fees or Letter of Credit Fees to which such
participant is entitled or extend any regularly scheduled payment date for
principal or interest.
19.6. Disclosure. The Borrower agree that in addition to disclosures
----------
made in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Credit
<PAGE>
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Agreement to assignees or participants and potential assignees or participants
hereunder; provided that such assignees or participants or potential assignees
or participants shall agree (i) to treat in confidence such information unless
such information otherwise becomes public knowledge, (ii) not to disclose such
information to a third party, except as required by law or legal process and
(iii) not to make use of such information for purposes of transactions unrelated
to such contemplated assignment or participation.
19.7. Assignee or Participant Affiliated with the Borrower. If any
----------------------------------------------------
assignee Bank is an Affiliate of the Borrower or any of its Subsidiaries, then
any such assignee Bank shall have no right to vote as a Bank hereunder or under
any of the other Loan Documents for purposes of granting consents or waivers or
for purposes of agreeing to amendments or other modifications to any of the Loan
Documents or for purposes of making requests to the Agent pursuant to ss.13.1 or
ss.13.2, and the determination of the Majority Banks shall for all purposes of
this Agreement and the other Loan Documents be made without regard to such
assignee Bank's interest in any of the Loans. If any Bank sells a participating
interest in any of the Loans or Reimbursement Obligations to a participant, and
such participant is the Borrower or an Affiliate of the Borrower, then such
transferor Bank shall promptly notify the Agent of the sale of such
participation. A transferor Bank shall have no right to vote as a Bank hereunder
or under any of the other Loan Documents for purposes of granting consents or
waivers or for purposes of agreeing to amendments or modifications to any of the
Loan Documents or for purposes of making requests to the Agent pursuant to
ss.13.1 or ss.13.2 to the extent that such participation is beneficially owned
by the Borrower or any Affiliate of the Borrower, and the determination of the
Majority Banks shall for all purposes of this Agreement and the other Loan
Documents be made without regard to the interest of such transferor Bank in the
Loans to the extent of such participation.
19.8. Miscellaneous Assignment Provisions. Any assigning Bank shall
-----------------------------------
retain its rights to be indemnified pursuant to ss.16 with respect to any claims
or actions arising prior to the date of such assignment. If any assignee Bank is
not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrower and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. If any Reference Bank or
the Issuing Bank transfers all of its interest, rights and obligations under
this Credit Agreement, the Agent shall, in consultation with the Borrower and
with the consent of the Borrower and the Majority Banks, appoint another Bank to
act as a Reference Bank or Issuing Bank, as the case may be, hereunder. Anything
contained in this ss.19 to the contrary notwithstanding, any Bank may at any
time pledge all or any portion of its interest and rights under this Credit
Agreement (including all or any portion of its Revolving Credit Notes) to any of
the twelve Federal Reserve Banks organized under ss.4 of the Federal Reserve
Act, 12 U.S.C. ss.341. No such pledge or the enforcement thereof shall release
the
<PAGE>
-84-
pledgor Bank from its obligations hereunder or under any of the other Loan
Documents.
19.9. Assignment by Borrower. The Borrower shall not assign or
----------------------
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.
20. NOTICES, ETC.
------------
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Revolving Credit Notes or any Letter of Credit
Applications shall be in writing and shall be delivered in hand, mailed by
United States registered or certified first class mail, postage prepaid, sent by
overnight courier, or sent by telegraph, telecopy, facsimile or telex and
confirmed by delivery via courier or postal service, addressed as follows:
(a) if to the Borrower or any Guarantor, at Genesee &
Wyoming Inc., 71 Lewis Street, Greenwich, CT, Attention: Mark W.
Hastings, Treasurer and Chief Financial Officer, or at such other
address for notice as the Borrower shall last have furnished in
writing to the Person giving the notice;
(b) if to the Agent, at 100 Federal Street, Transportation
Division, Boston, Massachusetts 02110, USA, Attention: Dexter
Freeman, Director, or such other address for notice as the Agent
shall last have furnished in writing to the Person giving the notice;
and
(c) if to any Bank, at such Bank's address set forth on
Schedule II hereto, or such other address for notice as such Bank
shall have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
21. GOVERNING LAW.
-------------
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
<PAGE>
-85-
LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS
TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY
SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN
ss.20.
22. HEADINGS.
--------
The captions in this Credit Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
23. COUNTERPARTS.
------------
This Credit Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Credit Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
24. ENTIRE AGREEMENT, ETC.
---------------------
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated, except as
provided in ss.26.
25. WAIVER OF JURY TRIAL, ETC.
-------------------------
The Borrower hereby waives its right to a jury trial with respect to
any action or claim arising out of any dispute in connection with this Credit
Agreement, the Revolving Credit Notes or any of the other Loan Documents, any
rights or obligations hereunder or thereunder or the performance of which rights
and obligations. Except as prohibited by law, the Borrower hereby waives any
right it may have to claim or recover in any litigation referred to in the
preceding sentence any special, exemplary or punitive damages or any damages
other than, or in addition to, actual damages and waives all suretyship defenses
generally. The Borrower (i) certifies that no representative, agent or attorney
of any Bank or the Agent has represented, expressly or otherwise, that such Bank
or the Agent would not, in the event of litigation, seek to enforce the
foregoing waivers and (ii) acknowledges that the Agent and the Banks have been
induced to enter into this Credit Agreement, the other Loan Documents to which
it is a party by, among other things, the waivers and certifications contained
herein.
<PAGE>
-86-
26. CONSENTS, AMENDMENTS, WAIVERS, ETC.
----------------------------------
Any consent or approval required or permitted by this Credit
Agreement to be given by all of the Banks may be given, and any term of this
Credit Agreement, the other Loan Documents or any other instrument related
hereto or mentioned herein may be amended, and the performance or observance by
the Borrower or any of its Restricted Subsidiaries of any terms of this Credit
Agreement, the other Loan Documents or such other instrument or the continuance
of any Default or Event of Default may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the written consent of the Borrower and the written consent of the
Majority Banks. Notwithstanding the foregoing, the rates of interest on the
Revolving Credit Notes (other than interest accruing pursuant to ss.5.10.2
following the effective date of any waiver by the Majority Banks of the Default
or Event of Default relating thereto), the term of the Revolving Credit Notes,
the amount of the Commitments of the Banks, the timing of payment of any
principal, interest, fees and Reimbursement Obligations, and the amount of
commitment fee or Letter of Credit Fees hereunder may not be changed and
principal may not be forgiven without the written consent of the Borrower and
the written consent of each Bank affected thereby; the release of any Guarantor
shall not be permitted without the consent of the Majority Banks, provided that
the release of any Guarantor having total assets in excess of ten percent (10%)
of the consolidated total assets of GWI and its Restricted Subsidiaries shall
not be permitted without the consent of all of the Banks; the definition of
Majority Banks and this ss.26 may not be amended and the Maturity Date may not
be postponed without the written consent of all of the Banks; and the amount of
the Agent's Fees, any Letter of Credit Fees, or any other fees payable for the
Agent's account and ss.15 may not be amended without the written consent of the
Agent. No waiver shall extend to or affect any obligation not expressly waived
or impair any right consequent thereon. No course of dealing or delay or
omission on the part of the Agent or any Bank in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or
demand upon the Borrower shall entitle the Borrower to other or further notice
or demand in similar or other circumstances.
27. SEVERABILITY.
------------
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Credit Agreement in any jurisdiction.
28. TRANSITIONAL ARRANGEMENTS.
-------------------------
28.1. Prior Credit Agreement Superseded. This Credit Agreement shall
---------------------------------
on the Closing Date supersede the Prior Credit Agreement in its entirety,
<PAGE>
-87-
except as provided in this ss.28. On the Closing Date, the rights and
obligations of the parties evidenced by the Prior Credit Agreement shall be
evidenced by the Credit Agreement and the other Loan Documents, the "Loans" as
defined in each of the Prior Credit Agreement shall be converted to Loans as
defined herein and all outstanding letters of credit issued by the Agent for the
account of the Borrower or any of its Subsidiaries prior to the Closing Date
shall, for the purposes of this Credit Agreement, be Letters of Credit.
28.2. Return and Cancellation of Notes; Release of Collateral. As
-------------------------------------------------------
soon as reasonably practicable after the Closing Date, the Banks under the Prior
Credit Agreement will promptly return to the Borrower, marked "Substituted" or
"Cancelled", as the case may be, any notes of the Borrower held by the Banks
pursuant to the Prior Credit Agreement. On the Closing Date or as soon as
reasonably practicable thereafter, the Agent will release all collateral pledged
pursuant to the Prior Credit Agreement and the Loan Documents referred to
therein.
28.3. Interest and Fees under Superseded Agreement. All interest and
--------------------------------------------
fees and expenses, if any, owing or accruing under or in respect of the Prior
Credit Agreement through the Closing Date shall be calculated as of the Closing
Date (pro rated in the case of any fractional periods), and shall be paid on the
Closing Date. Commencing on the Closing Date, the commitment fee shall be
payable by the Borrower to the Agent for the account of the Banks in accordance
with ss.2.2.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-88-
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
GENESEE & WYOMING INC.
By: /s/ Mark W. Hastings
________________________________________________________
Mark W. Hastings, Treasurer
BANKBOSTON, N.A. (f/k/a The First National Bank of Boston),
individually, as Agent and as Issuing Bank
By: /s/ Barbara W. Wilson
________________________________________________________
Name: Barbara W. Wilson
Title: Managing Director
LASALLE NATIONAL BANK, individually and as Co-Agent
By: /s/ Terri A. Maurer
________________________________________________________
Name: Terri A. Maurer
Title: VP
THE FIRST NATIONAL BANK OF CHICAGO, individually and as Co-
Agent
By: /s/ Gregory J. Sjullie
--------------------------------------------------------
Name: Gregory J. Sjullie
Title: Vice President
KEYBANK N.A.
By: /s/ Timothy R. Beers
------------------------------------------------------
Name: Timothy R. Beers
Title: Vice President
<PAGE>
-89-
FLEET BANK, N.A.
(f/k/a NatWest Bank, N.A.)
By: /s/ Andrea H. Lee
____________________________________________________
Name: Andrea H. Lee
Title: VP
CORESTATES BANK, N.A.
By: /s/ Theresa Marie Smith
____________________________________________________
Name: Theresa Marie Smith
Title: V.P.
GUARANTORS: ROCHESTER & SOUTHERN
RAILROAD, INC.
LOUISIANA & DELTA RAILROAD,
INC.
GENESEE AND WYOMING
RAILROAD COMPANY
BUFFALO & PITTSBURGH
RAILROAD, INC.
ALLEGHENY & EASTERN
RAILROAD, INC.
WILLAMETTE & PACIFIC
RAILROAD, INC.
GWI LEASING CORPORATION
GWI DAYTON, INC.
GWI RAIL MANAGEMENT
CORPORATION
GENESEE & WYOMING INVESTORS,
INC.
ILLINOIS & MIDLAND RAILROAD,
INC.
GWI CANADA, INC.
PORTLAND & WESTERN
RAILROAD, INC.
By: /s/ Mark W. Hastings
--------------------------------
Mark W. Hastings, Treasurer
<PAGE>
-90-
THE DANSVILLE AND MOUNT
MORRIS RAILROAD COMPANY
BRADFORD INDUSTRIAL
RAIL, INC.
GENESEE & WYOMING RAILROAD
SERVICES, INC. (f/k/a Railroad
Services, Inc.)
By: /s/ Alan R. Harris
-------------------------
Alan R. Harris, Treasurer
GWI SWITCHING SERVICES, L.P.
By: GWI Dayton, Inc.
Its General Partner
By: /s/ Mark W. Hastings
----------------------------
Mark W. Hastings, Treasurer
PITTSBURG & SHAWMUT
RAILROAD, INC.
By: /s/ David J. Collins
----------------------------
David J. Collins, President
RAIL LINK, INC.
CAROLINA COASTAL RAILWAY, INC.
COMMONWEALTH RAILWAY, INC.
TALLEYRAND TERMINAL RAILROAD
COMPANY, INC.
By: /s/ James W. Benz
______________________________
James W. Benz, President
CORPUS CHRISTI TERMINAL
RAILROAD, INC.
By: /s/ James W. Benz
----------------------------
Title: President
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1
TO THE
GENESEE & WYOMING INC.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
EFFECTIVE JULY 25, 1997
WHEREAS, Genesee & Wyoming Inc., a Delaware corporation (the "Company"), has
established the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors
(the "Plan"); and
WHEREAS, deeming it appropriate and advisable so to do, and pursuant to
Section 14 of the Plan, the Board of Directors of the Company has authorized,
approved and adopted the amendment to the Plan set forth herein;
NOW, THEREFORE, the Plan is hereby amended, effective July 25, 1997, as set
forth below:
1. The last sentence of Section "4(a) GRANT DATES; NUMBER OF SHARES."
of the Plan is hereby amended to provide in its entirety as follows (with the
remainder of said Sec tion 4(a) being unchanged and unaffected by this Amendment
and continuing in full force and effect):
"On the first anniversary and the second anniversary of the date he
first became a Participating Director (each, a `Grant Date'), each New
Director in office on such date shall automatically be granted an Option
to purchase 1,000 Shares; provided, however that no Option shall be
granted on any such Grant Date unless the Company's net income, after
taxes, for the then most recently completed fiscal year, as shown on the
Company's audited financial statements for that fiscal year, exceeds by
at least 10 percent the Company's net income, after taxes, for the
immediately preceding fiscal year."
2. Except as amended hereby, the Plan shall remain in full force and
effect in accordance with its terms.
THIS AMENDMENT NO. 1 TO THE GENESEE & WYOMING INC. STOCK OPTION PLAN FOR OUT
SIDE DIRECTORS WAS AUTHORIZED, APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS OF
THE COMPANY ON JULY 25, 1997.
/S/ JAMES B. GRAY, JR.
----------------------
JAMES B. GRAY, JR., SECRETARY
<PAGE>
EXHIBIT 10.2
DATED DAY OF
- ------------------------------------------------------------
MEMORANDUM OF LEASE
BETWEEN
MINISTER FOR TRANSPORT AND URBAN PLANNING A BODY CORPORATE
UNDER THE ADMINISTRATIVE ARRANGEMENTS ACT 1994
THE LESSOR
-AND-
AUSTRALIA SOUTHERN RAILROAD PTY LTD
A.C.N. 079 444 296
THE LESSEE
CROWN SOLICITOR
Level 5, 45 Pirie Street, Adelaide SA 5000
_________________________________________________________________________
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
Railcor6
7 November 1997
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause PAGE
<S> <C>
1. DEFINITIONS AND INTERPRETATION................................................................... 1
1.1 Definitions..................................................................................... 1
1.2 Interpretation.................................................................................. 7
1.3 Business Day.................................................................................... 8
2. LEASE, RESERVATIONS AND ANCILLARY RIGHTS........................................................ 8
2.1 Grant of Lease.................................................................................. 8
2.2 Term of Lease................................................................................... 8
2.3 Holding over.................................................................................... 8
2.4 Right of Renewal................................................................................ 8
2.5 Ancillary Rights................................................................................ 10
2.6 Reservation..................................................................................... 10
2.7 Ancillary Rights over SACBH Land................................................................ 10
2.8 Agreement between SACBH and Lessee.............................................................. 10
2.9 Variation if Lessor is not a State Agency....................................................... 11
3. RENT, AND OUTGOINGS.............................................................................. 11
3.1 Rail Corridor Rent.............................................................................. 11
3.2 Balance of the Land Rent........................................................................ 12
3.3 Payment of Rent................................................................................. 12
3.4 Payment of Outgoings............................................................................ 12
3.5 Commercial Rent................................................................................. 12
4. LAND AREA SUBJECT TO VARIATION................................................................... 13
4.1 Variations...................................................................................... 13
4.2 Surrender of land not used for Railway Operations............................................... 13
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
<TABLE>
<S> <C>
4.3 Process (Surrender and Acquisition of Track Infrastructure)..................................... 16
4.4 Disputed Valuation.............................................................................. 17
4.5 Process (Hazard Removal Obligations)............................................................ 17
4.6 Surrender of the Lease and Consequential Matters................................................ 18
4.7 Adjustments to Rail Corridors................................................................... 19
4.8 Use of Track Infrastructure..................................................................... 19
5. LESSOR'S RIGHTS AND OBLIGATIONS.................................................................. 20
5.1 Quiet enjoyment................................................................................. 20
5.2 Reservations.................................................................................... 20
5.3 Permit use of existing rights................................................................... 20
5.4 Lessor's right to enter Land.................................................................... 21
5.5 Dedication or easement.......................................................................... 21
5.6 Lessor may perform Lessee's obligations......................................................... 21
5.7 Lessor's consent................................................................................. 21
5.8 Property Records................................................................................. 22
5.9 No compensation for buildings and improvements................................................... 22
5.10 Title to Land................................................................................... 22
5.11 Lodgement of Documents.......................................................................... 22
5.12 The Existing Leases............................................................................. 23
5.13 Creation of Easements........................................................................... 23
5.14 Native Title.................................................................................... 24
6. LESSEE'S OBLIGATIONS.............................................................................. 25
6.1 General obligations.............................................................................. 25
6.2 Use.............................................................................................. 26
6.3 Maintenance of Land.............................................................................. 28
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
<TABLE>
<S> <C>
6.4 Notification of damage............................................................................ 28
6.5 Lessor's interest in Land......................................................................... 29
6.6 Cost and risk of Lessee's obligations............................................................. 29
6.7 Access to Records................................................................................. 29
6.8 National Estate Significance...................................................................... 29
7. INSURANCE, RISK AND INDEMNITIES.................................................................... 30
7.1 Public liability.................................................................................. 30
7.2 Workers' compensation............................................................................. 31
7.3 Industrial Special Risks.......................................................................... 31
7.4 Proceeds of Insurance............................................................................. 31
7.5 Policies.......................................................................................... 32
7.6 Maintain insurance................................................................................ 32
7.7 Disclaimer........................................................................................ 33
7.8 Lessor's Rights to Insure......................................................................... 33
7.9 Lessee's risk..................................................................................... 33
7.10 Release of Lessor................................................................................ 33
7.11 Indemnity........................................................................................ 34
7.12 Continuing indemnity............................................................................. 34
8. ASSIGNMENT, SUBLEASE AND MORTGAGE.................................................................. 34
8.1 Assignment........................................................................................ 34
8.2 Sublease and Licensing............................................................................ 35
8.3 Permitted Dealing................................................................................. 35
8.4 Mortgage.......................................................................................... 35
8.5 Dealing with Track Infrastructure................................................................. 37
9. TERMINATION........................................................................................ 37
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
<TABLE>
<S> <C>
9.1 Events of default................................................................................. 37
9.2 Process (Termination)............................................................................. 40
9.3 Appointment of attorney........................................................................... 40
9.4 Indemnity for breach.............................................................................. 40
9.5 Interest on overdue money......................................................................... 41
9.6 Other Remedies.................................................................................... 41
10. CONSEQUENCES OF TERMINATION OR EXPIRY............................................................. 41
10.1 Right to acquire Track Infrastructure............................................................ 41
10.2 Useable Track Infrastructure..................................................................... 41
10.3 Unacquired Track Infrastructure.................................................................. 41
10.4 Removal of Hazards............................................................................... 42
10.5 Process (Acquisition of Track Infrastructure).................................................... 42
10.6 Disputed Valuation............................................................................... 43
10.7 Surrender of the Lease and Consequential Matters................................................. 43
11. HAZARD REMOVAL.................................................................................... 44
11.1 Application...................................................................................... 44
11.2 Meanings......................................................................................... 44
11.3 Exclusion of Obligation.......................................................................... 45
11.4 Attachment of Obligation......................................................................... 45
11.5 Discharge of Obligation.......................................................................... 45
12. FORCE MAJEURE..................................................................................... 46
12.1 Definition....................................................................................... 46
12.2 Specific Circumstances........................................................................... 46
12.3 Expenditure...................................................................................... 47
12.4 Effect........................................................................................... 47
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
<TABLE>
<S> <C>
12.5 Obligation to Work Around........................................................................ 47
12.6 Notification..................................................................................... 47
12.7 Abatement of Rent................................................................................ 47
13. GENERAL........................................................................................... 47
13.1 Notices.......................................................................................... 47
13.2 Compliance with Law.............................................................................. 48
13.3 Governing law.................................................................................... 48
13.4 Waiver........................................................................................... 48
13.5 Severability..................................................................................... 49
13.6 Counterparts..................................................................................... 49
13.7 Further assurance................................................................................ 49
13.8 Entire agreement................................................................................. 49
13.9 Costs and expenses............................................................................... 49
13.10 Exclusion of statutory provisions............................................................... 50
13.11 Mitigation...................................................................................... 50
13.12 Payment after notice............................................................................ 50
13.13 Disputes Provision............................................................................... 50
13.14 Confirmation of Compliance with Lease............................................................ 52
13.15 Lessee's warranty................................................................................ 53
13.16 No merger........................................................................................ 53
13.17 Exclusion of moratorium.......................................................................... 53
14. CONTAMINATION...................................................................................... 53
14.1 Definitions....................................................................................... 53
14.2 Existing Contamination and Commonwealth Remediation............................................... 54
14.3 Compliance with Environmental Notices............................................................. 54
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
<TABLE>
<S> <C>
14.4 Indemnity......................................................................................... 54
15. EXCLUSION OF COVENANTS IMPLIED BY STATUTE.......................................................... 55
15.1 Real Property Act................................................................................. 55
15.2 Landlord and Tenant Act........................................................................... 55
16. FURTHER ASSURANCES................................................................................. 55
17. ACKNOWLEDGEMENT THAT THIS LEASE IS NOT A "MISCELLANEOUS LEASE"..................................... 55
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
THIS MEMORANDUM OF LEASE
- ------------------------
BETWEEN:
- -------
MINISTER FOR TRANSPORT AND URBAN PLANNING A BODY CORPORATE UNDER THE
- --------------------------------------------------------------------
ADMINISTRATIVE ARRANGEMENTS ACT 1994 (the "Lessor")
- ------------------------------------
AND
- ---
AUSTRALIA SOUTHERN RAILROAD PTY LTD [A.C.N 079 444 296] (The "Lessee")
- -----------------------------------
THE PARTIES COVENANT AS FOLLOWS
- -------------------------------
The Lessor hereby leases to the Lessee the land described in Schedule 1 and
further described in the plans exhibited to this Memorandum of Lease ("the
Land") for the term of 50 years commencing on the Commencing Date specified in
this Lease (subject to the right of renewal granted in this Lease) and at the
rent and on the other provisions contained in this Lease subject to and
reserving to the Lessor and other persons as described in this Lease, the
rights, powers or entitlements specified in Schedule 1.
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Lease unless the contrary intention appears:
1.1.1 AGREEMENT TO LEASE means the Deed of Agreement to Lease and
Charge made between the Lessor, SA Rail Pty Ltd, ACN 077 946
340 and the Lessee dated the 7th day of November 1997.
1.1.2 AUTHORITY includes any government, semi or local government,
statutory or other authority or body, but does not include the
Lessor in its capacity either as lessor, pursuant to this
Lease or as the holder of an estate in freehold in any portion
of the Land.
1.1.3 BALANCE OF THE LAND means all the Land other than the Rail
Corridor.
1.1.4 BULK HANDLING FACILITIES means bins, silos, elevators,
conveyor belts and other accommodation, plant and equipment
for the reception, storage, handling and delivery of grain in
bulk.
- --------------------------------------------------------------------------------
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
1.1.5 BUSINESS DAY means a day on which banks are open for general
banking business in Adelaide excluding Saturdays, Sundays and
Public Holidays.
1.1.6 COMMENCING DATE means 7 November 1997.
1.1.7 COMMERCIAL RENT means rent calculated in accordance with
clause 3.5.
1.1.8 COMMISSION means the Australian Heritage Commission.
1.1.9 CONTAMINATION means in the respect of Land:
1.1.9.1 affectation or degradation by the presence of any
chemical substance (including without limitation any
dangerous good, hazardous material, asbestos or any
waste), where having regard to the use of the Land or
of any other land in its vicinity, the chemical
substance creates or may create a risk of harm to the
environment.
1.1.10 DISPUTES PROVISION means clause 13.13.
1.1.11 DORMANT CONDITION in respect of a line or part of a line means
that;
1.1.11.1 the line is closed to rail traffic;
1.1.12.1 road crossings are not operated; and
1.1.13.1 Track Infrastructure is maintained only to a level in
which it is reasonably practicable to reopen the line
for rail traffic of a similar volume and nature as was
operated on the line before it was closed to rail
traffic, within a period of two weeks.
1.1.12 EVENT OF DEFAULT means an event referred to in clause 9.1.
1.1.13 EXISTING LEASE means a lease over any part of the Land granted
by a predecessor in title to the Lessor which is current as at
the Commencement Date and which is binding on the Lessor by
virtue of Section 6 of the Non-metropolitan Railways (Transfer)
Act 1997.
1.1.14 EXCLUDED LAND means the Land defined in item 2 of Schedule 1.
1.1.15 HAZARD REMOVAL WORK has the meaning attributed in clause 11.
1.1.16 LEASE means this Lease and any equitable Lease or common law
tenancy evidenced by this Lease.
1.1.17 LESSEE means Australia Southern Railroad Pty Limited (ACN079
444 296)
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
1.1.18 LESSEE'S AGENTS means every agent, employee, licensee,
contractor and invitee of the Lessee.
1.1.19 LESSEE'S PROPERTY means all the Lessee's fixtures, fittings,
equipment, furnishings and other property of the Lessee on the
Land (including the Track Infrastructure);
1.1.20 LESSOR means the Minister for Transport a body corporate
pursuant to the Administrative Arrangements Act, 1994 (SA).
1.1.21 LINEAR CONTINUITY means, in respect of a line,
1.1.22.1 the state of being either physically open to rail
traffic along its whole length, or maintained in a
Dormant Condition, and
1.1.21.1 the state of being maintained in the possession of the
Lessee.
1.1.22 LINE means a part of the Rail Corridor that lies between two
specified locations and includes the associated yards, sidings,
terminals, stations and other Track Infrastructure needed to
allow and facilitate the operation of rolling stock between
those two locations;
1.1.23 MARKET VALUE with respect to any Track Infrastructure means the
fair market value of the Track Infrastructure assessed on the
basis of continued railways usage, without deduction of
replacement value of tunnels, bridges or formations reverting to
the Lessor.
1.1.24 MINIMUM SERVICE REQUIREMENTS means the services specified in
Schedule 4.
1.1.25 NATIONAL ESTATE LAND means:
1.1.25.1 that part of the Land which is at the Commencing Date
entered in the Register of the National Estate
maintained by the Commission including the land
described in Schedule 6 to this Lease; and
1.1.25.2 any part of the Land which at any time during the
Term, is entered in the Register of the National
Estate maintained by the Commissioner.
1.1.26 NON OPERATIONAL LINES means the lines:
1.1.26.1 from Wolseley to Mount Gambier,
1.1.26.2 from Millicent to Mount Gambier,
1.1.26.3 from Victorian border to Mount Gambier,
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
1.1.26.4 from Wallaroo to Snowtown.
1.1.27 OUTGOINGS means all amounts payable or incurred by the Lessor or
the Lessee during the Term in respect of the Land or the
control, management or maintenance of the Land including, but
not limited to, the following:
1.1.27.1 (RATES AND LEVIES) all rates, rents, levies and other
charges payable to any Authority;
1.1.27.2 (TAXES) all imposts, duties, fees, deductions,
compulsory loans or withholdings and taxes (including
but subject to the operation of Section 9 of the Non-
metropolitan Railway (Transfer) Act 1997 and Section
16 of the Railways (Operation and Access) Act 1977,
land tax in respect of the Balance of the Land but
excluding income tax and capital gains tax) payable to
any Authority;
1.1.27.3 (INSURANCE) any insurance premium and other expense
relating to any insurance policy of any kind required
to be obtained under this Lease, whether in respect of
the Land, its use, the Lessee's Property or the
Lessee's business including, but not limited to,
insurance in respect of, public liability and
consequential loss; and
1.1.27.4 (SERVICES) the cost of all services supplied to the
Land including, but not limited to, lighting, power,
heating, water, air-conditioning, security and
emergency services, and all associated maintenance,
repair, replacement and servicing costs, and
1.1.27.5 compensation for which the Lessee is responsible under
clause 5.14.2.3.2.;
but excluding:
1.27.6 amounts paid or incurred by the Lessor which the
Lessor is under no legal obligation to pay, or which
arise out of a legal obligation voluntarily assumed by
the Lessor,
1.27.7 any amount paid or incurred by the Lessor pursuant to
an obligation assumed by the Lessor in respect of
which the Lessor is entitled to exemption,
1.1.27.8 and compensation for which the Lessor is responsible
under clause 5.14.2.3.1.
1.1.28 RAIL CORRIDOR means that part of the Land described in
Schedule 3.
1.1.29 RAILWAY OPERATIONS means services provided by or in association
with:
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
1.1.29.1 the provision, maintenance, movement, shunting,
storage, fuelling, unfuelling, loading and unloading
of Rolling Stock to transport freight by rail; and
1.1.29.2 the provision, maintenance, storage, building,
rebuilding, servicing, replacing and repairing of
Track Infrastructure and Rolling Stock; and
1.1.29.3 the conduct of the business of handling, storing and
transporting freight and passengers, or either, by
rail (and incidentally by road); and
1.1.29.4 the maintenance and operation of signalling and
communication equipment; and
1.1.29.5 includes a Railway Integrated Business.
1.1.30 RAILWAY INTEGRATED BUSINESS means a business:
1.1.30.1 which is conducted in an integrated fashion with the
rail network;
1.1.30.2 which is conducted in premises where the Lessee has
the capacity to deliver and recover freight by rail;
1.1.30.3 which is conducted in premises where there is a rail
spur specific to the business; and
1.1.30.4 in respect of which the Lessee in practice conducts
delivery of supplies and recovery of production by
rail.
1.1.31 RELATED PARTY of the Lessee means either of the following:
1.1.31.1 a "related party" of the Lessee for the purposes of
Section 243F of the Corporations Law;
1.1.31.2 a "related body corporate" of the Lessee for the
purposes of Section 50 of the Corporations Law.
1.1.32 RENT PAYMENT DATES means the day after the fifth anniversary of
the Commencing Date, and thereafter the 1st day of March, June,
September and December in each year for the remainder of the
Term.
1.1.33 ROLLING STOCK means a vehicle (whether or not self-propelled)
that operates on or uses a railway line.
1.1.34 SACBH means South Australian Co-Operative Bulk Handling Limited,
a Corporations Law entity limited by guarantee without a share
capital (A.C.N. 007 556 256) and includes any person who
operates Bulk Handling Facilities wholly or partially in place
of SACBH.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
1.1.35 SAICORP means South Australian Government Captive Insurance
Corporation a body corporate established pursuant to the Public
Corporations Act, 1993.
1.1.36 SIGNIFICANT PUBLIC HAZARD has the meaning attributed in
clause 11.
1.1.37 STATE AGENCY means the Crown in right of the State of South
Australia an agency or instrumentality of the Crown in right of
the State of South Australia a "Minister" within the meaning of
the Administrative Arrangements Act 1994 or a public corporation
within the meaning of the Public Corporations Act 1993.
1.1.38 SURRENDER NOTICE means a notice given by the Lessor to the
Lessee or by the Lessee to the Lessor in terms of clause 4.3.
1.1.39 TRACK INFRASTRUCTURE means the following improvements to the
Land, whether or not constituting fixtures at law:
1.1.39.1 track work including without limitation, rail lines,
crossing loops, level crossings, sleepers, ballast,
fastenings, points, poles, pylons, pipes, drains,
structures, supports, overhead lines, buffer stops,
posts and signs;
1.1.39.2 earthworks and formations including cuttings,
embankments, tunnels (including any tunnel lighting
and ventilation), ditches and retaining walls;
1.1.39.3 bridges, culverts, overpasses, under bridge, viaducts,
jetties and wharves;
1.1.39.4 signalling and train control and communications
systems (including signal boxes, huts and telegraph
and transmission lines and instruments) which are
necessary for the safe and proper movement of trains;
1.1.39.5 access roads, approaches, footpaths, gates, cattle
stops, and fences; and
1.1.39.6 buildings and other structures including platforms,
railway stations, passenger terminals, freight sheds,
freight terminals, roundhouses, workshops and
associated buildings.
1.1.39.7 anything coming within the definition from time to
time of "fixed railway infrastructure" within the
meaning of the Railways (Operations and Access) Act
1997; and
1.1.39.8 anything placed or installed on the Land by or on
behalf of the Lessee or a person claiming through the
Lessee in substitution for
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
or in addition to anything fixed, installed or situated on the
Land as at the Commencing Date;
but does not include Bulk Handling Facilities paid for or operated by or
on behalf of SACBH. as at or prior to the Commencing Date;
1.1.40 Term means the term of this Lease commencing on the Commencing
Date and terminating on the Terminating Date.
1.1.41 Terminating Date means 7 November 2047.
1.2 INTERPRETATION
In this Lease, headings and underlining are for convenience only and do
not affect interpretation, and unless the context otherwise requires:
1.2.1 words importing the singular include the plural and vice versa;
1.2.2 a covenant or agreement on the part of two or more persons binds
them jointly and severally;
1.2.3 a reference to any thing (including any right or any period of
time) includes a part of that thing;
1.2.4 a reference to an individual or person includes a corporation,
partnership, joint venture, association, authority, trust, state
or government and vice versa;
1.2.5 a reference to any gender includes all genders;
1.2.6 a reference to a recital, clause, schedule, annexure or exhibit
is to a recital, clause, schedule, annexure or exhibit of or to
this Lease;
1.2.7 a recital, schedule, annexure, exhibit or a description of the
parties forms part of this Lease;
1.2.8 a reference to any agreement or document is to that agreement or
document (and, where applicable, any of its provisions) as
amended, novated, supplemented or replaced from time to time;
1.2.9 a reference to any Act or statutory instrument or particular
provision of an Act or such statutory instrument is taken to
include:
1.2.9.1 all regulations, orders or instruments issued under
the legislation or provision;
1.2.9.2 any modification, consolidation, amendment, re-
enactment, replacement or codification of such
legislation or provision; and
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
1.2.9.3 any substituted legislation or substituted provision.
1.2.9.4 a reference to any party to this Lease or any other
document or arrangement includes that party's
executors, administrators, substitutes, successors and
permitted assigns;
1.2.9.5 where an expression is defined, another part of speech
or grammatical form of that expression has a
corresponding meaning; and
1.2.9.6 a reference to a month is to a calendar month.
1.3 BUSINESS DAY
If the day on or by which any thing is to be done under this
Lease is not a Business Day, that thing must be done:
1.3.1 if it involves a payment other than a payment which is
due on demand, on the preceding Business Day; and
1.3.2 in all other cases, no later than the next Business Day.
2. LEASE, RESERVATIONS AND ANCILLARY RIGHTS
2.1 GRANT OF LEASE
The Lessor leases to the Lessee and the Lessee takes a lease of the
Land on the terms and conditions set out in this Lease.
2.2 TERM OF LEASE
This Lease begins on the Commencing Date and ends on the Terminating
Date.
2.3 HOLDING OVER
2.3.1 If the Lessee continues to occupy the Land with the Lessor's
consent after the Terminating Date, the Lessee is a quarterly
tenant.
2.3.2 Subject to this clause 2.3, the quarterly tenancy is on the same
terms as this Lease, but including any other changes necessary
to make the terms appropriate for a quarterly tenancy.
2.3.3 Either party may terminate the quarterly tenancy by giving three
months' written notice to the other which notice may expire at
any time.
2.4 RIGHT OF RENEWAL
2.4.1 If the Lessee, at any time after the expiry of 40 years and
before the expiry of 45 years after the Commencing Date:
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
2.4.1.1 gives the Lessor a notice of intention to renew under
this clause at any time;
2.4.1.2 provides the Lessor with an investment plan which in
the Lessor's reasonable opinion represents a reasonable
commitment to maintain and enhance Railway Operations
to the extent that is commercially realistic in the
prevailing circumstances, and includes, to the extent
practicable, the following:
2.4.1.2.1 A Business Plan for Railway Operations on
the Land, including:
(i) a statement of Corporate intent;
(ii) a description of the proposed rail
network;
(iii) a business plan including financial
projections with and without the
implementation of specific investment
proposals;
(iv) a capital works programme, being a
summary of the investment proposals
more fully described below;
(v) a statement of borrowing requirements;
(vi) a statement of investment strategy;
2.4.1.2.2 An Investment Plan for the Land, including:
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
(i) a description of proposed projects
dealing separately with maintenance
of existing assets, replacement of
existing assets and the creation of
new assets;
(ii) a cash flow statement of
expenditure and expected income in
respect of each project and in
total is to be included, showing
the payback period;
(iii) any program of asset disposal or
arrangements for the reuse of
assets for other purposes is to be
provided;
(iv) a statement showing the source of
funds whether by borrowings, equity
contribution or the like is to be
included;
(v) The information is to be provided
for each year and include to the
extent practicable, a description
of each proposed project, the
nature of the project, its
location, its commencement, project
period and expected realisation;
("the Renewal Investment Plan"); and
2.4.1.3 undertakes to carry out the Renewal Investment Plan;
then provided there is no existing breach of this Lease, the
Lessor must grant the Lessee an extension of the Lease of the
Land for a further term of 15 years at an annual rental
determined in accordance with clause 3 on the same terms and
conditions as this Lease excluding the right of renewal
conferred in this clause.
2.4.2 If the Lessor does not approve an investment plan submitted
under this clause, the Lessor must give its reasons and the
Lessee may submit a further plan or plans subject to this
clause.
2.4.3 Upon grant of the extension referred to in clause 2.4.1, the
Lessee must commence and continue implementation of the Renewal
Investment Plan unless it is prevented from doing so by some
exigency which makes its implementation commercially unfeasible.
2.4.4 If the Lessee does not commence or ceases to implement the
Renewal Investment Plan in accordance with the this clause the
Lessor may terminate this Lease on or after the Terminating
Date, subject to clause 10.
2.5 ANCILLARY RIGHTS
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
This Lease is granted together with [Ancillary Rights to be granted
commensurate with Vested Rights in accordance with Agreement to Lease;
subject to identification of Vested Rights].
2.6 RESERVATION
This Lease is subject to rights reserved to the Lessor including rights
reserved for the benefit of Land leased by the Lessor to SACBH adjoining
the Land ("SACBH Land") as follows [to be identified in accordance with
the Agreement to Lease].
2.7 ANCILLARY RIGHTS OVER SACBH LAND
Subject to the following subclause, this Lease is granted together with
rights reserved by the Lessor for the benefit of the Land over the SACBH
Land as follows: [to be identified in accordance with the Agreement to
Lease].
2.8 AGREEMENT BETWEEN SACBH AND LESSEE
The Lessee must enter into with SACBH, and the Lessor must require SACBH
to enter into with the Lessee, an agreement substantially in the form of
Schedule 5 ("the SACBH Agreement").
Until the SACBH Agreement is entered into by the Lessee, the Lessee is
not entitled to exercise the rights referred to in sub-clause 2.7.
The Lessor must ensure that under the SACBH Lease, SACBH is not entitled
to exercise the rights referred to in clause 2.6 until it has entered
into the SACBH Agreement.
2.9 VARIATION IF LESSOR IS NOT A STATE AGENCY
2.9.1 If the Lessor's interest in the Land is assigned or vested in
an entity that is not a State Agency, this lease must be read
subject to the following amendments operable from the date of
such assignment or vesting:
2.9.1.1 delete from the definition of Market Value the words
"assessed on the basis of continued railway usage";
2.9.1.2 clause 5.2(a) shall only operate if the party becoming
the Lessor under the Lease is also the holder of the
estate in fee simple of the land occupied by SACBH;
2.9.1.3 notwithstanding anything contained in the Lease when
the Lessor's consent is required for anything under
the Lease that consent:
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
2.9.1.3.1 may not be withheld or made subject to conditions
unreasonably; and
2.9.1.3.2 if withheld or made subject to conditions the
Lessor must give written notice of the reasons
for withholding approval or attaching the
conditions;
2.9.1.4 The Lessor must, if the Lessee requires, take such steps
as are required to register this Lease, at the cost of the
Lessee.
2.9.2 If the Lessor contemplates an assignment or vesting of land
occupied by SACBH separately from the Land, the Lessor and
Lessee must create easements and rights equivalent to the
reservations and ancillary rights in respect of the SACBH
Land so as to enable the continued usage of the Land and the
SACBH Land under this Lease and the SACBH Lease.
3. RENT, AND OUTGOINGS
3.1 RAIL CORRIDOR RENT
Rent for the Rail Corridor is:
3.1.1 $1.00 per annum; and
3.1.2 after the expiry of 5 years after the Commencing Date, in
respect of any portion of the Rail Corridor which is
sublet, Commercial Rent.
3.2 BALANCE OF THE LAND RENT
Rent for the Balance of the Land is:
3.2.1 for the first five years of the Term $1.00 per annum; and
3.3.2 for the balance of the Term, Commercial Rent.
3.3 PAYMENT OF RENT
3.3.1 The Lessee must pay the Rent for the Rail Corridor to the
Lessor annually in advance on the Commencing Date and on
each subsequent anniversary of the Commencing Date (if
demanded).
3.3.2 The Lessee must pay the Rent for the Balance of the Land to
the Lessor
3.3.2.1 annually in advance on the Commencing Date and on
each subsequent anniversary of the Commencing Date
for the first five (5) years of the Term (if
demanded), and
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
3.3.2.2 thereafter in advance on each Rent Payment Date by
instalments, each instalment to be equal to one
quarter of the annual rent due for the relevant 12
month period.
3.3.3. The rent payable for the Balance of the Land after the first
five years of the Term shall be payable without demand, free of
exchange and without set-off or counterclaim.
3.4 PAYMENT OF OUTGOINGS
3.4.1 The Lessee must;
3.4.1.1 promptly pay the Outgoings for the Land as and when
those Outgoings fall due for payment, or
3.4.1.2 The Lessor may pay any of the Outgoings which have not
been paid by the Lessee when due . Any such sum or sums
paid by the Lessor may be recovered from the Lessee
together with interest pursuant to clause 9.6
(calculated from the date when any such Outgoings was
due) as if the same were rent in arrears.
3.4.1.3 if any Outgoings are in fact paid by the Lessor under
this clause, promptly reimburse the Lessor for the
amount so paid by the Lessor upon receipt of evidence
that the amount has been so paid.
3.5 COMMERCIAL RENT
3.5.1 Commercial Rent in respect of any portion of the Land is an
annual rent comprising the sum of eight percent (8%) of the Site
Value of the portion of the Land.
3.5.2 In this clause:
Site Value is, as at any anniversary of the Commencing Date, the
then current site value of the relevant portion of the Land
determined by the Valuer General in accordance with the
Valuation of Land Act 1971.
4.1 LAND AREA SUBJECT TO VARIATION
4.1 VARIATIONS
4.1.1 The area of the Land may be increased or reduced from
time to time in accordance with the provisions of this
Clause 4.
4.1.2 The Lessee agrees to surrender and the Lessor agrees to
accept a surrender of this Lease in respect of any Land
removed from the scope of this Lease in
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
accordance with clause 4.2 or 4.3 when that Land is
identified and recorded in accordance with this
Clause 4.
4.1.3 If land leased to or used by SACBH is surrendered by
SACBH and
4.1.3.1 the land is owned by the Lessor;
4.1.3.2 the land is reasonably required to perform
Railway operations carried on or intended to
be carried on by the Lessee; and
4.1.3.3 the Lessor does not require the land for any
other purpose,
the Lessee may require the Lessor to enter into a lease of that
additional land on the terms and conditions contained in this
Lease for the balance of the Term.
4.2 SURRENDER OF LAND NOT USED FOR RAILWAY OPERATIONS
4.2.1 If immediately prior to the issue of a Surrender Notice Railway
Operations have not been conducted on a portion of the Land, for
a continuous period of eighteen months during the Term and have
not been recommenced (save for a grace period in respect of the
Non Operational Lines of two years from the Commencing Date)
then
4.2.2 the Lessee may surrender the Lease in respect of that portion of
the Land and the Lessor must accept such surrender; and
4.2.3 the Lessor may require the Lessee to surrender the Lease in
respect of that portion of the Land.
4.2.4 the parties acknowledge that the rights conferred by the
preceding sub clause are not in the nature of a remedy for
breach, but a means of adjusting the extent of the Land subject
to this Lease, in accordance with the following principles;
4.2.4.1 if Land is not genuinely required for use for Railway
Operations, it is properly regarded as non-operational
or surplus land which the State may recover for its
own purposes;
4.2.4.2 if Land is used or is genuinely intended for use (as
contemplated in clause 4.2.5.4) for Railway
Operations, it should be retained for use by the
Lessee;
4.2.4.3 if the Lessee maintains a line or part of a line in a
Dormant Condition, that constitutes use for the
purposes of this clause, but does not preclude the
Lessee from surrendering the relevant part of the
Land;
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
4.2.4.4 if the Lessee has a genuine intention to use or to
explore the feasibility of use of a part of the Land
for Railway Operations, and notifies the Lessor
accordingly, then for six months following such notice
(unless the Lessee notifies to the contrary) the Lessee
is taken to be using the Land for Railway Operations,
and on the expiry of the six month period:
4.2.4.4.1 if the Lessee provides to the Lessor a bona
fide business plan for use of the relevant
part of the Land for Railway Operations, and
for so long as the Lessee implements or
develops the plan with due expedition, the
Lessee is taken to be using the Land for
Railway Operations; and
4.2.4.4.2 if the Lessee does not provide, develop or
implement such a business plan, the Lessee is
taken not to be using the relevant part of
the Land.
4.2.5 If Minimum Service Requirements are not met with respect to a
portion of the Land for a continuous period of 6 months during
the first five years of the Term, the Lessor may require the
Lessee to surrender the Lease in respect of that portion of the
Land.
4.2.6 If the Lessor requires the Lessee to surrender, or the Lessee
elects to surrender a portion of the Land under this clause, the
Lessor may at its election acquire all or any part of the Track
Infrastructure located on that portion of the Land as at the
Surrender Notice Date:
4.2.6.1 if before the expiry of the first five years after the
Commencing Date, without being liable to make any
payment, and
4.2.6.2 if after the expiry of five years after the Commencing
Date, upon payment to the Lessee of the Market Value
of the Track Infrastructure.
4.2.7 The Lessor may not exercise its right to acquire less than all
the Track Infrastructure located on the portion of the Land under
the preceding subclause unless the Track Infrastructure selected
comprises, (so far as is practicable in light of the size and
location of the land) an integrated package of infrastructure
capable of use for Railway Operations.
4.2.8 With respect to any Track Infrastructure which the Lessor elects
not to acquire ("the Unacquired Track Infrastructure):
4.2.8.1 the Lessee may remove all or any part of the Unacquired
Track Infrastructure either before the Lessee is
required to deliver a partial Surrender of the Lease
with respect to the part of the Land where the
Unacquired Track Infrastructure is located, or within a
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
reasonable time not exceeding six months after the
delivery of partial Surrender of the Lease notified by
the Lessee by written notice to the Lessor;
4.2.8.2 if it removes all or any part of the Unacquired Track
Infrastructure, the Lessee must ensure that the
portion of the Land from which it is removed is not by
reason of such removal left unsafe at the Lessee's
cost and to the Lessor's reasonable satisfaction; and
4.2.8.3 if the Lessee does not remove the Unacquired Track
Infrastructure within the time required in this
clause, then title to that part of the Track
Infrastructure passes to the Lessor.
4.2.9 If the Lessor requires the Lessee to surrender, or the Lessee
elects to surrender a portion of the Land under this clause, the
Lessee is only obliged to restore or repair any Track
Infrastructure;
4.2.9.1 to the extent necessary to comply with the Lessee's
maintenance obligations under this Lease , and
4.2.9.2 to the extent necessary to repair any damage caused by
negligence or wilful act of the Lessee or any person
for whom the Lessee is legally responsible.
4.2.10 The Lessee must comply with the Hazard Removal Obligation in
respect of the part of the Land in respect of which the Lessee
is required to deliver a partial Surrender of the Lease.
4.3 PROCESS (SURRENDER AND ACQUISITION OF TRACK INFRASTRUCTURE)
4.3.1 In order to exercise the Lessor's right to require the Lessee to
surrender a portion of the Land under clause 4.3, the Lessor
must give the Lessee a Surrender Warning Notice (which may be
given before the right of the Lessor to require the surrender
arises, in respect of circumstances which the Lessor believes
will give rise to such a right, if continued) and, at the time
the right arises or 60 days after the service of the Surrender
Warning Notice (whichever is later), a Surrender Notice.
4.3.2 In order to exercise the Lessee's right to surrender a portion
of the Land under clause 4., the Lessee must give the Lessor a
Surrender Notice.
4.3.3 A Surrender Warning Notice must:
4.3.3.1 state that it is a Surrender Warning Notice;
4.3.3.2 be dated;
4.3.3.3 adequately identify the portion of the Land to which
it relates; and
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
4.3.3.4 set out the facts on the basis of which the Lessor believes
the right to require a Surrender has arisen or will arise.
4.3.4 A Surrender Notice must:
4.3.4.1 state that it is a notice under this clause;
4.3.4.2 be dated,
4.3.4.3 adequately identify the portion of the Land in respect of
which a partial surrender is required or intended,
4.3.4.4 set out the facts which give rise to the application of this
clause.
4.3.5 If the party receiving a Surrender Warning Notice or a Surrender Notice
(the "receiving party") wishes to dispute that the other party (the
"notifying party") is entitled to give the Notice, the receiving party
must so notify the notifying party not later than one month after the
date of the Surrender Notice, and must state the matters of fact and any
other matter specified in the Notice with which the receiving party
takes issue. The receiving party must also provide the notifying party
with such evidence as practicable in support of the receiving party's
position within 45 days of the Notice.
4.3.6 No later than 90 days after a Surrender Notice which is not disputed
under the preceding subclause is given by either party, or not later
than 90 days after any dispute as to the Surrender Notice is resolved
(if resolved in favour of the validity of the Surrender Notice) the
Lessee must give the Lessor written notice ("Notice of Value and
Condition ") in respect of the relevant portion of the Land:
4.3.6.1 referring to the relevant Surrender Notice and the portion of
the Land to which it relates;
4.3.6.2 if the Lessee would be entitled to require payment for the
Track Infrastructure, the Lessee's estimate of the Market Value
of the Track Infrastructure, itemised insofar as practicable
with respect to the various categories of the Track
Infrastructure; and
4.3.6.3 a description of any Significant Public Hazard on or in the
relevant portion of the Land.
4.3.7 Within 90 days of receiving a notice of Terms of Surrender, the Lessor
must advise the Lessee by notice in writing:
4.3.7.1 whether the Lessor elects to acquire all or any of the relevant
Track Infrastructure and identifying that category or part of
the Track Infrastructure to be acquired ("the Nominated Track
Infrastructure");
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
4.3.7.2 (if the Lessee is entitled to payment for the Nominated Track
Infrastructure), whether the Lessor accepts or disputes the
Lessee's assessment of its Market Value and if disputed, the
Lessor's assessment of its Market Value.
4.4 DISPUTED VALUATION
4.4.1 If the parties do not, within one hundred and twenty days of the
Notice of Value and Condition, agree on either the Market Value
of Nominated Track Infrastructure for which the Lessor is liable
to pay, then a party may refer the matter to an independent
Expert for determination.
4.4.2 In the case of a dispute as to the Market Value of Nominated
Track Infrastructure, the independent expert must certify the
Market Value of the relevant Track Infrastructure and within
thirty days of receipt of this determination the Lessor must
either confirm or revoke its election to acquire the Nominated
Track Infrastructure or part of it.
4.4.3 If the Lessor revokes its election to acquire any Track
Infrastructure after an Expert Determination of its Market Value
which exceeds the Lessor's assessment of its Market Value, then
the Lessor must pay the whole of the costs of the Expert
Determination.
4.5 PROCESS (HAZARD REMOVAL OBLIGATIONS)
4.5.1 Not later than 60 days after;
4.5.1.1 receiving a Notice of Value and Condition in respect
of a part of the Land on which there is no Track
Infrastructure; or
4.5.1.2 electing not to acquire any Nominated Track
Infrastructure, or
4.5.1.3 agreeing the Market Value of Nominated Track
Infrastructure; or
4.5.1.4 receiving an Expert Determination of Nominated Track
Infrastructure;
the Lessor must give the Lessee a Hazard Removal Notice.
4.5.2 A Hazard Removal Notice must identify any Significant Public
Hazard described in the Notice of Value and Condition or
otherwise known to the Lessor to which the Lessor attaches a
Hazard Removal Obligation in accordance with clause 11.
4.5.3 If the Lessee wishes to dispute any matter in the Hazard Removal
Notice, the Lessee must notify the Lessor of the matter in
dispute and, to the extent practicable, any matters of fact
relevant to the dispute not later than 30 days after receipt of
the Hazard Removal Notice.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
4.5.4 If the parties do not within 90 days of the Hazard Removal
Notice agree the Hazard Removal Obligation, a party may refer
the matter for Expert Determination.
4.5.5 The Expert must determine what the Hazard Removal Obligation
under clause 11 is.
4.5.6 The Lessee must comply with its Hazard
Removal Obligation with respect to a part of the Land not later
than six months after;
4.5.6.1 the Hazard Removal Notice in respect of that part of the
Land; or
4.5.6.2 if the Hazard Removal Notice is disputed in accordance
with this clause, the date of the Expert Determination
as to the Hazard Removal Obligation.
4.6 SURRENDER OF THE LEASE AND CONSEQUENTIAL MATTERS
4.6.1 Where a valid Surrender Notice has been given by one party to
the other under clause 4.4
4.6.2 the Lessee must:
4.6.2.1 execute and deliver a partial surrender of the lease in
respect of the relevant portion of the Land, not later
than six months after the date of the Surrender Notice
or six months after the determination by an independent
expert of any dispute as to the Hazard Removal Work,
whichever is the later ("the Surrender Date"), and
4.6.2.2 relinquish possession of the portion of the Land to the
Lessor upon demand by the Lessor at any time after the
Surrender Date.
4.6.3 The costs of the preparation execution and registration of the
surrender of lease under this clause must be borne:
4.6.3.1 if the surrender is given at the election of the
Lessee, or pursuant to a Surrender Notice by the Lessor
made under clause 4.4(a)(ii) or 4.4(a)(iii), by the
Lessee;
4.6.3.2 in any other case, by the Lessor.
4.6.4 The Lessor must acquire Nominated Track Infrastructure with
respect to which the election to acquire has not been revoked
under clause 4.6.2. Title in Nominated Track Infrastructure
passes to the Lessor on payment of its Market Value, or if the
Lessor is not obliged to pay for it, on nomination by the
Lessor.
4.7 ADJUSTMENTS TO RAIL CORRIDORS
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
If the Lessee wishes to realign or make changes to the boundaries of the
Land then the parties will co-operate to the intent that:
4.7.1 any land to be added to the Land must be acquired at the cost of
the Lessee in the name of the Lessor and be made subject to the
provisions of this Lease;
4.7.2 with the approval of the Lessor any part of the Land which would
be made surplus by the proposed boundary changes may be dealt
with by exchanging it for additional land.
4.8 USE OF TRACK INFRASTRUCTURE
If within twelve months after a surrender under this clause, the Lessor:
4.8.1 commences to make use of the Track Infrastructure or a part of
the Track Infrastructure which the Lessor elected not to acquire
pursuant to this clause ("Unacquired Track Infrastructure") for
Railway Operations; or
4.8.2 makes the Unacquired Track Infrastructure available to another
person (a "Railway Licensee") for use in Railway Operations; or
4.8.3 commences a process of calling for bids or tenders or other
process designed to lead to a contract under which it is
proposed that a Railway Licensee will acquire or have the use of
the Unacquired Track Infrastructure for use in Railway
Operations:
then the Lessor will be liable to pay to the Lessee the Market Value of
so much of the Unacquired Track Infrastructure as the Lessor or the
Railway Licensee uses or acquires.
5. LESSOR'S RIGHTS AND OBLIGATIONS
5.1 QUIET ENJOYMENT
Subject to the Lessor's rights under this Lease, the Lessee may
peaceably possess and enjoy the Land for the Term without interruption
by the Lessor or any person lawfully claiming from or under the Lessor
except as expressly provided in this Lease.
5.2 RESERVATIONS
Notwithstanding anything contained in this Lease the Lessor RESERVES
to itself and excludes from the grant contained in this Lease the
following interests:
5.2.1.1 the rights of SACBH, subject to the reasonable
direction and control of the Lessee, (to the extent
that SACBH occupies or is a Lessee from the Lessor of
land adjacent to the Rail Corridors) to
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
take access to and encroach upon Rail Corridors for
the purpose of permitting access across tracks for grain
handling, shunting wagons on sidings, crossing rail
lines, obtaining access to encroachments and
facilitating the outloading of grain from silos and
otherwise facilitating the ordinary undertaking by SACBH
of its business activities on land adjacent to Rail
Corridors; and
5.2.1.2 the areas of land and interests described in Item 2 of
Schedule 1.
5.3 PERMIT USE OF EXISTING RIGHTS
5.3.1 During the Term the Lessor must permit the Lessee to continue to
use all existing drains, waterways, easements and services
pertaining to any of the Land which are under the control of the
Lessor and which adjoin or neighbour the Land and where any of
such land is sold, subdivided or leased, ensure that the Lessee
continues to have those rights or provide alternative facilities
for the Lessee.
5.3.2 If any of the Track Infrastructure is situated on Land which is
both excised from the description of the Land prior to the grant
of this Lease and is adjacent to the Land, the Lessor will
ensure that rights of the Lessee to access and use the Track
Infrastructure for the purpose of Railway Operations are
preserved for the benefit of the Lessee.
5.4 LESSOR'S RIGHT TO ENTER LAND
5.4.1 Subject to paragraph 5.4.2, the Lessor may enter the Land
together with all necessary workmen and equipment at all
reasonable times for the following purposes, if it gives the
Lessee reasonable prior notice:
5.4.1.1 to determine the condition of the Land or whether the
Lessee is complying with this Lease;
5.4.1.2 to exercise its rights under clause 5.6;
5.4.1.3 to carry out any work to the Land made necessary by any
failure by the Lessee to satisfy the terms and
conditions of this Lease, or to carry out work on any
adjacent property of the Lessor; and
5.4.1.4 to enable it to comply with any law or any notice from
any Authority affecting the Land.
5.4.2 When exercising its rights under paragraph 5.4.1:
5.4.2.1 the Lessor must take reasonable steps to minimise any
disruption to the Lessee; and
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
5.4.2.2 is not required to give reasonable prior notice or
enter at a reasonable time in the case of an emergency,
but will give notice to the Lessee promptly thereafter.
5.5 DEDICATION OR EASEMENT
The Lessor may dedicate any part of the Land or grant an easement in
respect of any part of the Land, but only if such dedication or grant
does not;
5.5.1.1 materially affect the Lessee's rights under this Lease;
or
5.5.1.2 materially impair the Lessee's ability to carry on its
business on the Land including, without limitation, the
continued conduct of Railway Operations.
5.6 LESSOR MAY PERFORM LESSEE'S OBLIGATIONS
The Lessor may, at the Lessee's cost, do anything which the Lessee is
obliged to do under this Lease but has failed to do. The Lessor agrees
that it will not exercise its rights under this clause unless it has
given notice to the Lessee specifying the matter which has not been done
and giving the Lessee a reasonable period to take corrective action
(such period to be not less than 30 days).
5.7 LESSOR'S CONSENT
If the Lessor's consent is required for anything under this Lease, that
consent:
5.7.1 must be in writing; and
5.7.2 may be given, either conditionally or unconditionally, or
withheld, in the Lessor's absolute discretion,
unless this Lease states otherwise.
5.8 PROPERTY RECORDS
For the purposes of clarification it is recorded that ownership of all
property information, plans and records relating to the Land at the
Commencing Date and made available to the Lessee remains at all times
with the Lessor. The Lessor must permit the Lessee, at the Lessee's
cost, to have access to such information plans and records in business
hours and on reasonable notice, and must permit the Lessee to take
copies of such information at the Lessee's expense.
5.9 NO COMPENSATION FOR BUILDINGS AND IMPROVEMENTS
5.9.1 Subject to Clause 4 and clause 10, upon the expiration or
earlier determination of the Term in respect of the Land or any
part all buildings and other improvements remaining on such Land
are deemed to have
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
become and to be the sole and exclusive property of the Lessor
without the Lessor being required to pay any compensation
whatsoever to the Lessee.
5.9.2 Notwithstanding any thing else in this Lease, title to any
tunnel, bridge or formation on any part of the Land will vest in
the Lessor without any obligation to make payment to the Lessee
on surrender of that part of the Land or termination or expiry
of this Lease.
5.10 TITLE TO LAND
5.10.1 The parties believe that the Lessor has the necessary rights of
ownership, occupation or usage over the Land to enable it to
grant this Lease, but the Lessor gives no warranties as to title
and will have no liability for any defect in title or right of
occupation or usage that may exist, now or in the future.
5.10.2 To the extent that the Lessee requires any action to be taken in
the name of the Lessor in order to remedy any defects referred
to in this clause, or requires administrative assistance in
obtaining access to records which are available only from the
Lessor, the Lessor, at its own expense, will provide all
reasonable assistance to the Lessee.
5.10.3 Despite any other provision in this Lease, the Lessee
acknowledges that this Lease is granted subject to any other
interests, rights, licences, easements or other agreements
binding upon the Lessor, or by statute, affecting the Land.
5.11 LODGEMENT OF DOCUMENTS
If:
5.11.1 an alteration or addition to the Track Infrastructure ("Works")
is permitted by this Lease;
5.11.2 any documents are required by an Authority to be signed and
lodged by the Lessor as the proprietor of the Land before the
Works are approved by the Authority or performed by the Lessee;
and
5.11.3 the Lessee has prepared and submitted the documents to the
Lessor,
then the Lessor must sign and permit the lodgement of the documents.
5.12 THE EXISTING LEASES
The Lessor and the Lessee covenant and acknowledge as follows in respect
of the Existing Leases:
5.12.1 The Lessor shall deliver to the Lessee, on or before the
execution of this Lease, copies of all documents in her
possession constituting the grant of an Existing Lease or
containing covenants or other contractual provisions applicable
to an Existing Lease.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
5.12.2 On and from the Commencement Date and until the expiration or
earlier termination of the Existing Leases:
5.12.2.1 the Lessee shall be entitled to all the rights of a
concurrent lessee of the Lessor in respect of the
Land, including, without limitation, the right to
receive rent and any other moneys payable pursuant to
an Existing Lease on and after the Commencement Date
and to enforce the rights of the Lessor pursuant to an
Existing Lease on and after the Commencement Date; and
5.12.2.2 the Lessee must comply with all obligations of the
Lessor under the Existing Leases.
5.12.3 On and from the date of the execution of this Lease, the Lessor
shall not vary or amend an Existing Lease, accept the surrender
of an Existing Lease or release or discharge a Lessee under an
Existing Lease from performance of any obligations pursuant to
that Existing Lease without the prior written consent of the
Lessee.
5.13 CREATION OF EASEMENTS
5.13.1 Subject to subclause 5.13.3, the Lessor shall, if requested by
the Lessee, and at the cost and expense of the Lessee in all
things grant an easement for:
5.13.1.1 public or private access to and egress from the Land;
5.13.1.2 support of existing or future structures erected on or
from adjoining land (subject to any applicable building
and planning laws);
5.13.1.3 or services of whatever nature to the Land; where the
requested easement is reasonably necessary for the
purposes of undertaking Railway Operations on the Land.
5.13.2 This Lease is deemed to be subject to any easement created or
granted pursuant to this clause.
5.13.3 If the Lessor is of the view that either the creation or
amendment of or the nature or extent of the rights requested to
be agreed, granted or created in respect of any easement
requested by the Lessee is not reasonably necessary for the
purpose of Railway operations then the Lessor may refer the
matter to a relevant Expert under clause 13.13 who shall provide
an opinion as to whether the request is reasonably necessary for
the relevant purpose.
5.14 NATIVE TITLE
5.14.1 The Lessor agrees to notify the Lessee in writing of:
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
5.14.1.1 any native title claims which are lodged over any of
the Land after commencement of the Lease, within one
month of the Lessor receiving notice of such claim
pursuant to Section 66(2) of the Native Title Act
(Cth) 1993;
5.14.1.2 the progress of any native title claims which in any
way affects the Lessee's rights and obligations under
this Lease;
5.14.1.3 any Determination which in any way affects the Land,
within seven days of the Lessor being notified of
such Determination;
5.14.1.4 any agreement that has been entered into by the
Lessor with the Commonwealth or any Aboriginal group
concerning native title rights or Aboriginal Items
which in any way affects the Lessee's rights under
this Lease, within seven days of entering into such
agreement; and
5.14.1.5 any claim of the existence of any Aboriginal Item
which in any way affects the Land or the Lessee's
rights under this Lease, as soon as it becomes aware
of any such claim in its capacity as owner of the
Land.
5.14.2 Determination
5.14.2.1 The parties do not acknowledge that any native title
exists in any of the Land.
5.14.2.2 The following clause will apply in the event that
either;
5.14.2.2.1 native title is found to exist in any of
the Land under the NTA or any other law;
or
5.14.2.2.1 any Aboriginal Item is located on the
Land.
5.14.2.3 As between the Lessor and the Lessee:
5.14.2.3.1 the Lessor, and not the Lessee, will be
responsible for the payment of
compensation and any other moneys (if
any) payable to the native title holders
of any of the Land, the owners of any
Aboriginal Item and any other person
payable as a result of the grant of the
right of exclusive possession conferred
by this Lease; and
5.14.2.3.2 if the obligation to pay such
compensation or other moneys arises as a
result of the use to which the Lessee or
anyone claiming through or under the
Lessee puts the Land, and does not fall
within the
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
scope of clause 5.14.2.3.1,
the Lessee will be responsible for
payment.
5.14.3 Associated Definitions
5.14.3.1. ABORIGINAL HERITAGE LAW means a law regulating or
otherwise relating to the protection of matters of
Aboriginal cultural heritage significance including,
without limitation, the Aboriginal and Torres Strait
Islander Protection Act 1984 (Cth), the Aboriginal
Heritage Act 1988 (SA) and the Aboriginal Relics Act
1975 (Tas);
5.14.3.2 ABORIGINAL ITEM means any object or site which is of
Aboriginal cultural heritage significance to any
Aboriginal Group;
5.14.3.3 DETERMINATION means any notice, order, judgement or
declaration issued or made by any government or
governmental authority, judicial or quasi-judicial
body, or tribunal that native title exists;
5.14.3.4 NTA means the Native Title Act (Cth) 1993 and
complementary South Australian legislation.
6. LESSEE'S OBLIGATIONS
6.1 GENERAL OBLIGATIONS
The Lessee must:
6.1.1 (COMPLIANCE) at its cost obtain all consents required
from any Authority to carry on Railway Operations on the
Land and comply in all relevant respects with all laws
affecting the Land, the Lessee's Property and the
conduct of Railway Operations on the Land;
6.1.2 (SERVICES) PAY WHEN DUE ALL SANITARY CHARGES AND ALL
CHARGES FOR GAS, electricity, telephone and any water
consumption charge, garbage removal and all charges for
the provision of any services relating to the Lessee's
use of the Land;
6.1.3 (NOTIFICATION) promptly notify the Lessor, as soon as
the Lessee becomes aware, of any statutory notice from
any Authority with respect to infectious disease or
pests on the Land;
6.1.4 (ACCIDENT, DANGER) promptly provide to the Lessor any
information reasonably required by the Lessor with
respect to:
6.1.4.1 any accident occurring on the Land or as a
result of use of the Track Infrastructure;
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
6.1.4.2 any specific material defect or want of repair
in any improvements on the Land; and
6.1.4.3 any specific circumstance which the Lessor
considers is reasonably likely to cause any
significant danger, risk or hazard to the Land
or to any person on the Land or to the public
or adjoining buildings in the immediate
vicinity of the Land;
upon receipt from the Lessor of a notice specifying the
accident, defect, want of repair or circumstance, its
location (so far as known to the Lessor) and in the case
of accident, the time at which it occurred or is
believed to have occurred.
6.1.5 (FIRE PREVENTION) comply with all requirements of any
Authority or insurer in respect of the prevention or
control of fires in the buildings and the Lessee's
Property on the Land or on the Land itself; and
6.1.6 (payment to Lessor) make every payment to the Lessor
under this Lease without any set-off, counterclaim,
withholding or deduction.
6.2 USE
The Lessee has the exclusive right to use, occupy and enjoy the Land
during the Term but subject to the terms of this Lease and to the
following:
6.2.1 during the five (5) years following the Commencing Date the
Lessee must carry on Railway Operations on and from the land in
accordance with the Minimum Service Requirements set out in
Schedule 3, and thereafter the Lessee must continue to use the
land for Railways Operations.
6.2.2 unless otherwise provided for in this Lease, the Lessee must not
use the Land throughout the Term for any purpose other than
Railway Operations except where such land is required for future
Railway Operations by the Lessee;
6.2.3 the Lessee must not take any action or knowingly allow any
action to be taken during the Term which will interrupt the
linear continuity of any Rail Corridor;
6.2.4 the Lessee must allow any other party holding from the Lessor at
the Commencing Date or holding as permitted by this Lease in
respect of the Land, such rights of occupation, access, passage,
easement, charge, use or any rights or benefits whatever as
exist at the Commencing Date including but not limited to the
rights described in Section 2 of the Schedule, the full and
unimpeded use of such rights or benefits according to and
subject to the terms upon which such rights or benefits were
conferred, and must:
6.2.4.1 not knowingly do or allow to be done anything on or in
respect of the Land or any adjoining land which the
Lessee owns or occupies
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
or otherwise has control over, which would interfere
with such rights or benefits otherwise than to
exercise a right under a term upon which such rights
or benefits were conferred; and
6.2.4.2 to the extent that the Lessee is aware of any such
obligations, rights or benefits, carry out the
obligations of and protect the Lessor in respect of
such rights or benefits;
6.2.5 the Lessee will be entitled to all revenues from the Land and
from the carrying on of any business on the Land and must pay
and discharge all Outgoings in accordance with Clause 3.2;
6.2.6 the Lessee must not remove any item of Track Infrastructure from
the Land other than pursuant to an order issued by an Authority
or in compliance with the Lessee's repair, maintenance and
replacement obligations under this Lease, or with the prior
written consent of the Lessor, which must not be unreasonably
withheld; it is acknowledged that it is not unreasonable for the
Lessor to withhold consent or to impose conditions if the Lessor
reasonably believes that removal would:
6.2.6.1 have a significantly adverse effect on continuation of
Railway Operations; or
6.2.6.2 have a significantly adverse effect on regional
economic or employment conditions.
The Lessor must provide written reasons if the Lessor withholds
consent or imposes conditions as to the basis of that decision.
6.2.7 the Lessee must not affix or construct any permanent improvement
to or on the Land other than with the prior written consent of
the Lessor, which must not be unreasonably withheld or as
permitted by the terms of this Lease; it is acknowledged that it
is not unreasonable for the Lessor to withhold consent or impose
conditions if in the Lessor's reasonable opinion the proposed
improvement:
6.2.7.1 is not intended for use for Railway Operations;
6.2.7.2 would adversely affect the viability of Railway
Operations;
6.2.7.3 would have a significantly adverse affect on the value
of the Lessor's reversionary right in the Land.
The Lessor must provide written reasons if the Lessor withholds
consent or imposes conditions as to the basis of that decision.
6.2.8 the Lessee must exercise reasonable care in its use and
maintenance of the Land to avoid reasonably foreseeable injury
to persons or property.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
6.3 MAINTENANCE OF LAND
The Lessee must, to the extend necessary to avoid nuisance to
neighboring properties, to safeguard public safety and to maintain the
Lessee' ability to conduct Railway Operations:
6.3.1 (LAND) keep the Land (including fences) in good condition and
free of fire hazards and vermin in all respects (including,
without limiting the preceding requirements, grass cutting and
weed control and repairing and maintaining as required any
damage caused by fire, flood, lightning, storm, war or any act
of God);
6.3.2 (LESSEE'S PROPERTY) keep the Lessee's Property clean and in good
repair and condition;
6.3.3 (REMOVE REFUSE) remove all refuse from the Land regularly;
6.3.4 (CLEANING) keep any buildings on the Land clean and in good
condition; and
6.3.5 (DAMAGE) as soon as practicable repair any damage to the
Lessee's Property or the buildings on the Land.
6.4 NOTIFICATION OF DAMAGE
The Lessee must notify the Lessor as soon as practicable after the
Lessee becomes aware of any material damage to or defect in the Land,
the Lessee's Property or any building on the Land of which the cost of
repair or rectification is reasonably estimated to exceed $100,000.
6.5 LESSOR'S INTEREST IN LAND
6.5.1 The Lessee must not do anything which could prejudice the
Lessor's interest in the Land.
6.5.2 This clause is not intended to preclude the Lessee from doing
anything expressly permitted by this Lease.
6.6 COST AND RISK OF LESSEE'S OBLIGATIONS
If the Lessee is obliged to do anything under this Lease, it must do so
at its cost and at its risk.
6.7 ACCESS TO RECORDS
The Lessee must:
6.7.1 permit the Lessor access at all reasonable times to all
information held by the Lessee in any form relating to the Land,
the Track Infrastructure and the Lessee's compliance with the
terms of this Lease and the Lessee must make
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
no charge for access to records and plans but is entitled to
charge a reasonable fee to cover costs involved in supplying any
other information; and
6.7.2 store and maintain such information, records and plans to a
reasonable standard.
6.8 NATIONAL ESTATE SIGNIFICANCE
The parties agree and acknowledge:
6.8.1 the Lessee must conserve the significance of the National Estate
Land in the manner required by the South Australian Heritage Act
1993;
6.8.2 the Lessee must give to the Commission such assistance in the
carrying out of its functions as is reasonably practicable and
must comply with all reasonable requests for information made by
the Commission in the performance of its functions.
6.8.3 the Lessee must not take any action which is likely to affect
the National Estate Land to a significant extent unless:
6.8.3.1 it has notified the Lessor and the Commission and
afforded the Commission a reasonable opportunity to
comment upon the proposed action; and
6.8.3.2 the Lessee has obtained the consent of the Lessor
in writing to the action, such consent not to be
unreasonably withheld;
6.8.4 for the purposes of this clause 6.8, "significant extent" when
used in paragraph (c) in relation to National Estate Land
includes (without limitation) the following:
6.8.4.1 restoration of any building or improvements on any part
of the National Estate Land;
6.8.4.2 altering the fabric of any improvements on the National
Estate Land or replacing such fabric with another
material;
6.8.4.3 adding to or constructing nearby to existing
structures;
6.8.4.4 redesign and reconstruction of any improvements;
6.8.4.5 painting unpainted or original or early painted
surfaces;
6.8.4.6 altering the use of any improvements or the intensity
of the existing use;
6.8.4.7 cleaning the fabric of any improvement;
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
6.8.4.8 removing paint by mechanical chemical or blasting
methods;
6.8.4.9 applying masonry preservatives;
6.8.4.10 demolishing or removing parts of an existing
structure;
6.8.4.11 excavating or removing old soil or footings;
6.8.4.12 earthworks or landscaping;
6.8.4.13 removing or planting vegetation;
6.8.4.14 removing, changing or replacing machinery plumbing
sewerage or drains;
6.8.4.15 removing the contents of any improvements;
6.8.4.16 installing or upgrading any services;
6.8.4.17 road or path making;
6.8.4.18 discontinuing repairs or maintenance; and
6.8.4.19 the affixing of external signs.
7. INSURANCE, RISK AND INDEMNITIES
7.1 PUBLIC LIABILITY
The Lessee must take out and maintain a public liability insurance
policy in respect of the Land and the business and activities
conducted on the Land:
7.1.1 under which the maximum amount payable for a single claim
is at least $100,000,000, or any other amount from time to
time reasonably required by the Lessor and which a
reasonably prudent operator of railway operations for
carriage of freight would effect;
7.1.2 which contains all provisions that are normally contained
in public liability policies and any other provisions
reasonably required by the Lessor and available at
reasonable cost in the insurance market;
7.1.3 which, without limiting the rest of this clause 7, covers
death and injury to any person and damage to property of
any person sustained when that person is using or entering
the Land or resulting from any thing originating from the
Land; and
7.1.4 which expressly refers to and covers all of the Lessee's
obligations under this Lease, including the obligation to
indemnify the Lessor.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
7.2 WORKERS' COMPENSATION
The Lessee must ensure that it is registered as an employer or an exempt
employer under the Workers Rehabilitation and Compensation Act 1986 (SA)
and that it pays all monthly and other levies due under the Act in
respect of its employees engaged for the purpose of Railway Operations
on the Land.
7.3 INDUSTRIAL SPECIAL RISKS
The Lessee must take out and maintain a policy covering the Lessee's
Property for their full insurable value on a full replacement and
reinstatement basis against loss or damage by fire, explosion,
lightning, storm and tempest, earthquake, aircraft, impact by vehicles
or vessels, riots, strikes, malicious damage, all water perils including
flood, spontaneous combustion and such other risks (if any) as the
Lessor may from time to time reasonably direct including extra costs of
reinstatement, cost of removal of debris and all professional fees
incurred in replacing and/or reinstating the Lessee's Property.
7.4 PROCEEDS OF INSURANCE
If any loss or damage occurs which is covered by any insurance the
Lessee is required to maintain under this Lease the Lessee must:
7.4.1.1 apply for the insurance proceeds immediately; and
7.4.1.2 apply the proceeds:
7.4.1.2.1 subject to the terms of the relevant insurance
policy first to such repairs, replacement,
reinstatement or other works on the Land as are
required to ensure that the Track Infrastructure
and other improvements on the Land are no less
capable of supporting the Railway Operations which
are conducted on the Land than they were
immediately before the event of loss or damage in
respect of which the insurance proceeds were paid;
and
7.4.1.2.2 secondly, to capital investment in equipment,
rolling stock or improvements for use in Railway
Operations.
7.4.2 If the parties do not agree on the application of any
insurance proceeds under this clause, the matter may be
referred by either party to expert determination.
7.5 POLICIES
The Lessee must do the following in respect of each policy that it is
required to maintain under this Lease:
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
7.5.1 take it out with an insurance company approved by the Lessor,
whose approval must not be unreasonably withheld and if
withheld, the reasons for withholding must be disclosed in
writing to the Lessee;
7.5.2 if requested by the Lessor, give the Lessor a copy of the policy
and a certificate of currency for the policy; and
7.5.3 ensure that the policy notes the interest of the Lessor and
contains a requirement that the insurer will not cancel or
change the insurance without first giving the Lessor 30 days
prior written notice.
7.6 MAINTAIN INSURANCE
7.6.1 The Lessee must notify the Lessor of any new use of the Land or
change in the character of activities conducted on the Land that
would:
7.6.1.1 increase the premium payable on any insurance policy
taken out by the Lessor; or
7.6.1.2 affect the Lessor's rights under insurance policy or
make the policy invalid or able to be cancelled; or
7.6.1.3 increase the risk of the Lessor or the exposure of
Lessor under any self insurance regime operated by the
Lessor or SAICORP on behalf of the Lessor.
7.7 DISCLAIMER
7.7.1 The Lessor, in specifying levels of insurance in this Lease,
accepts no liability for the completeness of their listing, the
adequacy of the sum insured, limit of liability, scope of
coverage, conditions or exclusions of those insurances in
respect to how they may or may not respond to any loss, damage
or liability.
7.7.2 The Lessee acknowledges and agrees that it is the Lessee's
responsibility to assess and consider the risks and scope of
insurances required for its activities pursuant to this Lease.
7.8 LESSOR'S RIGHTS TO INSURE
Notwithstanding any other provision of this Lease, if:
7.8.1 the Lessee fails to take out or keep in force an insurance
policy required pursuant to this Lease or to pay the appropriate
premiums when due; or
7.8.2 the Lessor determines that the insurer under a policy may not be
capable of meeting a claim;
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
the Lessor may do anything which is advisable or necessary to take out
or keep in force that policy or to take out a new policy complying with
this clause at the cost of the Lessee and in the name of the Lessee and
the Lessor. The Lessor is not obliged to do anything under this clause.
If the Lessee fails or refuses to:
7.8.3 obtain or maintain any insurances required under this clause; or
7.8.4 provide the Lessor with copies of policies or certificates of
currency in relation to them in accordance with this clause;
then the Lessor may, but is not obliged to, effect and maintain the
relevant insurance policy or pay the premiums in respect thereof. The
cost of the Lessor doing so will be a debt due by the Lessee to the
Lessor payable forthwith by the Lessee receiving written demand from the
Lessor requiring payment accompanied with copies of any receipts in
respect of the payment of such premiums.
7.9 LESSEE'S RISK
The Lessee occupies the Land at its own risk.
7.10 RELEASE OF LESSOR
To the extent permitted by law, the Lessee releases the Lessor from any
claim, action, damage, loss, liability, cost or expense which the Lessor
incurs or is liable for in connection with any damage, loss, injury or
death to or of any person or property on the Land except to the extent
(if any) that such damage, loss, injury or death is caused or
contributed to by the Lessor, or the Lessor's employees or agents.
7.11 INDEMNITY
The Lessee indemnifies the Lessor against any claim, action, damage,
loss, liability, cost or expense which the Lessor incurs or is liable
for in connection with:
7.11.1 any damage, loss, injury or death, either to person or property
except to the extent (if any) that such damage, loss, injury or
death is caused or contributed to by the Lessor, or the Lessor's
employees or agents;
7.11.2 any Event of Default;
7.11.3 the use and occupation of the Land by the Lessee or the Lessee's
Agents;
7.11.4 any service or the misuse of any service provided to the Land;
7.11.5 the escape of any matter or thing whatsoever from the Land;
7.11.6 the conduct of Railway Operations on the Land; and
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
7.11.7 the failure of the Lessee to comply with any of its obligations
under any Existing Lease, any grant, easement or other right of
use or occupation of the Land made pursuant to any agreement
entered into prior to the Commencing Date, made as permitted
under the terms of this Lease or entered into pursuant to any
statute or regulation,
except, in each case, to the extent that any such claim, action, damage,
loss, liability, cost or expense is caused or contributed to by the
wilful misconduct, fraud, or negligence of the Lessor.
7.12 CONTINUING INDEMNITY
Each indemnity of the Lessee contained in this Lease is:
7.12.1 in respect of an act, breach or omission which occurs before the
termination of this Lease, a continuing obligation of the Lessee
and remains in full force and effect after the termination of
this Lease; and
7.12.2 a separate and independent obligation of the Lessee.
8. ASSIGNMENT, SUBLEASE AND MORTGAGE
8.1 ASSIGNMENT
The Lessee must not assign or purport to assign this Lease
without the Lessor's prior written consent, which may be
withheld, or given subject to conditions, at the Lessor's entire
discretion. If the Lessor refuses consent to a proposed
assignment, or attaches conditions, the Lessor must give the
Lessee written notice of the reasons for refusal or for the
conditions.
8.2 SUBLEASE AND LICENSING
The Lessee must not grant a sublease or licence with respect to
any part of the Land without the Lessor's prior written consent,
unless the sublease or licence is a Permitted Dealing within the
meaning of the following subclause.
8.3 PERMITTED DEALING
Each of the following is a Permitted Dealing:
8.3.1 a licence over or use of the Rail Corridor for the
purposes of a legislative access regime, or any other
access regime established or recognised under Part 111A
of the Trade Practices Act;
8.3.2 a licence to a sub-lessee under a Permitted Dealing
which performs Railway Operations, for the purpose of
performing Railway Operations;
8.3.3 a licence with respect to traversing or using a part of
the Land to an adjoining landowner for purposes which do
not prevent use of the Land for
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
Railway Operations provided that any payment to the Lessee for
such licence does not exceed the Lessee's costs of administering
the arrangement and maintenance of the relevant portion of the
Land necessitated by the licensee's use of the portion of the
Land;
8.3.4 a sublease of any part of the Balance of the Land or of the Rail
Corridor excluding the railway track, provided that;
8.3.4.1 in respect of that part of the Land the Lessee must,
after the fifth anniversary of the Commencing Date,
pay Commercial Rent to the Lessee; and
8.3.4.2 that part of the Land continues to be used for
Railways Operations.
8.4 MORTGAGE
8.4.1 The Lessee must not grant an Encumbrance over this Lease without
the Lessor's prior written consent, which must not be withheld
except for sufficient cause, provided the following conditions
are met:
8.4.1.1 the Lessee has granted the Lessor a charge over the
Track Infrastructure to secure its option to purchase,
and constraint on the removal at the Track
Infrastructure under this Lease;
8.4.1.2 any financier holding security over any assets of the
Lessee's undertaking must enter into an agreement with
the Lessor of the nature contemplated in S.26 of the
Operations and Access Act on terms acceptable to the
Lessor and has entered into agreement as to an agreed
form of priority as between the financier's security
and the charge referred to in clause 8.4.1.1.
8.4.2 If the Lessor consents to the granting of an Encumbrance, and
subject to compliance with conditions required by the Lessor,
the Lessor will enter into a facilitation agreement with the
Encumbrance which incorporates terms to be agreed between the
Lessor, the Lessee and the Encumbrancee including:
8.4.2.1 the Lessor giving notice to the Encumbrancee of any
default by the Lessee under the terms of the Lease;
8.4.2.2 the Encumbrancee having the right to remedy any default
by the lessee of the terms of the Lease;
8.4.2.3 the Encumbrancee being entitled to appoint a
receiver/manager or the like and the same not being a
breach of the Lease so long as the receiver/manager or
the like conducts Railways Operations and continues to
perform the obligations of the Lessee under the Lease;
and
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
8.4.2.4 the Encumbrancee or a receiver/manager of the Lessee
have a reasonable period of time in which to sell the
Lessee's interest in the Land or the Lessee's Property
to a third party in order to realise its security.
In this clause:
8.4.3 "ENCUMBRANCE" means any of the following encumbrances of the
Lessee's interest in this Lease or the Land or the Lessee's
Property granted by the Lessee by way of security for the
payment or repayment of any Financial Accommodation provided or
any other form of indebtedness incurred by the Lessee in
performing its functions under this Lease;
8.4.3.1 a mortgage, charge, encumbrance, lease, licence,
instalment or conditional purchase agreement, pre-
emptive right, right of first refusal, agreement to
purchase on deferred terms, title retention agreement,
preferential right, trust arrangement by way of
security, conditional agreement or any other security,
interest or power", or
8.4.3.2 an agreement to grant or create any of the foregoing.
8.4.4 "ENCUMBRANCEE" means a person to whom the Lessee has granted or
in whose favour the Lessee has created an Encumbrance.
8.5 DEALING WITH TRACK INFRASTRUCTURE
8.5.1 The Lessee must not transfer or purport to transfer
title to the Track Infrastructure or any material part
of the Track Infrastructure to another person except:
8.5.1.1 with the prior written consent of the Lessor,
or
8.5.1.2 if the relevant part of the Track
Infrastructure has been removed from the Land
in accordance with the terms of this Lease.
If the Lessee purports to transfer title to Track Infrastructure
or any part of it in breach of the preceding subclause, title to
the Track Infrastructure or that part of the Track
Infrastructure is vested in the Lessor forthwith.
9 TERMINATION
9.1 EVENTS OF DEFAULT
9.1.1 The Lessor may terminate this lease forthwith and re-
enter and take possession of the Land or, subject to
paragraph (b), convert this Lease to a monthly tenancy
if any of the following events occurs, is not remedied
and is not waived by the Lessor:
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
9.1.1.1 (NON-PAYMENT) after the fifth anniversary of
the Commencing Date, the Lessee does not pay
the Rent (as referred to in paragraph (b) of
the definition of Rent) or any other money due
to the Lessor under this Lease within 30 days
after written demand has been served by the
Lessor on the Lessee;
9.1.1.2 (BREACH) the Lessee:
9.1.1.2.1 removes any Track Infrastructure
(except as permitted by this
Lease) without the Lessor's
consent and does not reinstate
that Track Infrastructure within
30 days of being required to do so
by the Lessor;
9.1.1.2.2 purports to assign or mortgage
this Lease or grant a sublease
(except as permitted by this
Lease) without the Lessor's
consent;
9.1.1.2.3 fails to establish its head office
in the Adelaide area within six
months of the Commencing Date, and
maintain it in the Adelaide area
until the expiry of 5 years from
the Commencing Date;
9.1.1.2.4 fails to maintain in operations at
the Dry Creek and Port Augusta
workshops until the expiry of 5
years after the Commencing Date;
9.1.1.3 (REPEAT OR SUBSTANTIAL BREACH)
The Lessee breaches any one of the following
obligations on four occasions during a twelve
month period (whether the breach is remedied
or not), or commits a substantial breach of
any of the following obligations and does not
remedy that breach as soon as reasonably
practicable and in any event within 90 days of
being served with notice from the Lessor
requiring the breach to be remedied;
9.1.1.3.1 the obligation to permit the
exercise of rights of third
parties over the Land;
9.1.1.3.2 the obligation to permit the
Lessor entry under clause 5.4;
9.1.1.3.3 the general obligations under
clause 6.1;
9.1.1.3.4 the obligation not to use the Land
for other than Railways
Operations;
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
9.1.1.3.5 the obligation to maintain the Land under
clause 6.3;
9.1.1.3.6 the obligation to comply with laws;
9.1.1.3.7 the obligation to comply with any
Environmental Notice under clause 14.
9.1.1.4 (COMPANY) any of the following occurs :
9.1.1.4.1 an Administrator is appointed under section 436A,
436B or 436C of the Corporations Law or any action is
taken to make such appointment over the Lessee;
9.1.1.4.2 an application is made to a court under section 459A
of the Corporations Law for an order or an order is
made that the Lessee be wound up;
9.1.1.4.3 except to reconstruct or amalgamate while solvent, on
terms approved by the Lessor (which approval must not
be unreasonably withheld), the Lessee enters into, or
resolves to enter into, a scheme of arrangement or
composition with, or assignment for the benefit of
all or any class of its creditors, or it proposes a
re-organisation, moratorium or other administration
involving any of them;
9.1.1.4.4 except to reconstruct or amalgamate while solvent on
terms approved by the Lessor (which approval must not
be unreasonably withheld), the entity resolves to
wind itself up, or otherwise dissolve itself, or
gives notice of intention to do so, or is otherwise
wound up or dissolved; or
9.1.1.4.5 the Lessee is or states that it is unable to pay its
debts when they become due and payable.
9.1.1.4.6 if the Lessee or a Related Party of the Lessee causes
or permits a change in the control of:
9.1.1.4.6.1 the composition of the Lessee's board of
directors;
9.1.1.4.6.2 more than half of the voting power of
the Lessee's board of directors;
9.1.1.4.6.3 more than half of the voting power of
the Lessee's issued share capital; or
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
9.1.1.4.6.4 more than half of the Lessee's used
share capital (excluding any part
which carries no right to
participate beyond a specified
amount in the distribution of
either profit or capital.
9.1.1.5 (FAILS TO PROVIDE MINIMUM SERVICES) during the first
five years of the Term, the Lessee fails;
9.1.1.5.1 to comply with the Minimum Service
Requirements for a continuous period of six
(6) months, and
9.1.1.5.2 to recommence the provision of those
Minimum Service Requirements within 30 days
of written notice from the Lessor
requesting that such services be provided.
9.1.1.6 (RAILWAY CEASES) the Lessee ceases to conduct Railway
Operations on the entire Rail Corridor for a
continuous period of eighteen (18) months.
9.1.2 If the Lessor converts this Lease to a monthly tenancy under
subclause 9.1.1, such monthly tenancy shall be on the same terms
as this Lease, and either party may terminate the monthly
tenancy by giving one week's written notice to the other.
9.2 PROCESS (TERMINATION)
9.2.1 In order to exercise the Lessor's right to require the Lessee to
terminate, the Lessor must give the Lessee a Termination Warning
Notice (which may be given before the right of the Lessor to
terminate arises, in respect of circumstances which the Lessor
believes will give rise to such a right, if continued) and at
the time the right arises or 60 days after the service of the
Termination Warning Notice (whichever is later), a Termination
Notice.
9.2.2 A Termination Warning Notice and a Termination Notice must:
9.2.2.1 be identified as a Termination Warning Notice or a
Termination Notice;
9.2.2.2 be dated; and
9.2.2.3 set out the facts on the basis of which the Lessor
believes the right to terminate has arisen or will
arise.
9.2.3 If the Lessee receives a Termination Warning Notice and wishes
to dispute that the Lessor is or will be entitled to terminate,
the Lessee must so notify the Lessor not later than one month
after the receipt of the Notice, stating the matters of fact and
any other matter contained in the Notice with which the
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
Lessee takes issue. The Lessee must also provide the Lessor with
such evidence as practicable in support of the Lessee's position
within 45 days of receipt of the Termination Warning Notice.
9.3 APPOINTMENT OF ATTORNEY
The Lessee irrevocably appoints the Lessor its attorney. The Lessor may,
in his or her name or in the name of the Lessee, do any of the following
after an Event of Default occurs, is not remedied and is not waived by
the Lessor:
9.3.1 any thing which ought to be done by the Lessee under this Lease;
9.3.2 exercise any right, power, authority, discretion or remedy of
the Lessee under this Lease; and
9.3.3 execute a transfer or surrender of this Lease.
9.4 INDEMNITY FOR BREACH
Subject to any obligation of the Lessor to mitigate its loss, the Lessee
indemnifies the Lessor against any claim, action, loss, damage, cost,
liability, expense or payment suffered or incurred by the Lessor in
connection with the Lessor's termination of this Lease under clause 9.
9.5 INTEREST ON OVERDUE MONEY
If the Lessee does not pay any money payable by it under this Lease by
the due date, it must pay interest on that amount on demand by the
Lessor. Interest is:
9.5.1 payable from the due date until payment is made by the Lessee
before and, as an additional and independent obligation, after
any judgment or other thing into which the liability to pay the
money payable becomes merged; and
9.5.2 calculated on daily balances at the rate of 1% per annum above
the rate for 90 day bills published in the Australian Financial
Review on, or as near as possible to, the due date; and
9.5.3 capitalised monthly.
9.6 OTHER REMEDIES
Nothing in this clause affects any other rights or remedies otherwise
available to either party in respect of any breach of this Lease,
including without limitation, the right to claim damages, or to apply
for an injunctive or declaratory relief or specific performance.
10. CONSEQUENCES OF TERMINATION OR EXPIRY
10.1 RIGHT TO ACQUIRE TRACK INFRASTRUCTURE
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
Upon termination or expiry of this Lease the Lessor may at its
election acquire all or any part of the Track Infrastructure
located on the Land as at the date of termination or expiry:
10.1.1 if termination occurs before the expiry of five years
from the Commencing Date, at no cost to the Lessor; and
10.1.2. in any other case, upon payment to the Lessee of the
Market Value of the Track Infrastructure.
10.2 USEABLE TRACK INFRASTRUCTURE
The Lessor may not exercise its right to acquire less than all the Track
Infrastructure located on the Land under the preceding subclause unless
the Track Infrastructure selected comprises an integrated package or
packages of infrastructure capable of use for Railway Operations.
10.3 UNACQUIRED TRACK INFRASTRUCTURE
With respect to any Track Infrastructure which the Lessor elects not to
acquire:
10.3.1 the Lessee may remove that part of the Track Infrastructure;
10.3.2 if it removes that part of the Track Infrastructure, the Lessee
must ensure that the portion of the Land from which it is
removed is not by reason of such removal left unsafe at the
Lessee's cost and to the Lessor's reasonable satisfaction; and
10.3.3 if the Lessee does not remove that part of the Track
Infrastructure before the expiry of the Term or within six
months after the termination of the Lease, then title to that
part of the Track Infrastructure passes to the Lessor.
10.3.4 If within twelve months after the expiry or termination of the
Lease, the Lessor:
10.3.4.1 commences to make use of the Track Infrastructure or
a part of the Track Infrastructure which the Lessor
elected not to acquire pursuant to this clause
("Unacquired Track Infrastructure") for Railway
Operations; or
10.3.4.2 makes the Unacquired Track Infrastructure available
to another person (a "Railway Licensee") for use in
Railway Operations; or
10.3.4.3 commences a process of calling for bids or tenders or
other process designed to lead to a contract under
which it is proposed that a Railway Licensee will
acquire or have the use of the Unacquired Track
Infrastructure for use in Railway Operations;
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
then the Lessor will be liable to pay to the Lessee the
Market Value of so much of the Unacquired Track
Infrastructure as the Lessor or the Railway Licensee
uses or acquires.
10.4 REMOVAL OF HAZARDS
The Lessee must comply with the Hazard Removal Obligation attaching to
any Significant Public Hazard on the Land or a part of the Land at the
time when;
10.4.1 the Lessee elects to or is required to Surrender the part of the
Land; or
10.4.2 the Lease expires or is terminated.
10.5 PROCESS (ACQUISITION OF TRACK INFRASTRUCTURE)
Within ninety days of termination of this Lease, or (if the parties have
not agreed to a renewal of this Lease) six months prior to the expiry of
the Term of this Lease the Lessee must give the Lessor written notice
("a Notice of Value and Condition "):
10.5.1 (if the Lessee would be entitled to payment for Track
Infrastructure) stating the Lessee's estimate of the Market
Value of the Track Infrastructure, itemised with respect to the
various components of the Track Infrastructure; and
10.5.2 describing any Significant Public Hazard on or in the Land.
10.5.3 Within 90 days of receiving a Finalisation Proposal, the Lessor
must advise the Lessee by notice in writing:
10.5.3.1 whether the Lessor elects to acquire any or all of
the Track Infrastructure ("Nominated Track
Infrastructure");
10.5.3.2 whether the Lessor accepts or disputes the Lessee's
assessment of its Market Value, and if it is
disputed, the Lessor's assessment of its Market
Value.
10.6 DISPUTED VALUATION
10.6.1 If the parties do not, within one hundred and twenty days of the
Notice of Value and Condition , agree on the Market Value of
Track Infrastructure which Lessor elects to acquire, then a
party may refer the matter to an independent Expert for
determination.
10.6.2 The independent expert must certify the Market Value of the
Nominated Track Infrastructure and within thirty days of receipt
of this determination the Lessor must either confirm or revoke
its election to acquire the Nominated Track Infrastructure or
part of it.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
10.6.3 If the Lessor revokes its election to acquire any Track
Infrastructure after an Expert Determination of its Market Value
which exceeds the Lessor's assessment of its Market Value, then
the Lessor must pay the whole of the costs of the Expert
Determination.
10.7 SURRENDER OF THE LEASE AND CONSEQUENTIAL MATTERS
10.7.1 If the Lease is terminated, the Lessee must promptly execute and
deliver a surrender of the Lease.
10.7.2 If the Lease has been terminated or has expired, the Lessee must
promptly give vacant possession of the Land in the condition and
state of repair required under this Lease upon demand by the
Lessor, and the Lessor must promptly make any payment due to the
Lessee in respect of acquisition of the Nominated Track
Infrastructure.
10.7.3 If the Lessee has relinquished possession of the Land prior to
the expiry of a period of six months after termination of the
Lease, then until that date the Lessor will grant to the Lessee
a licence to come onto the Land to the extent reasonably
required and for the purpose of removing any Significant Public
Hazard or removing Track Infrastructure which has not been
acquired by the Lessor.
10.7.4 After the completion of the Hazard Removal Work in accordance
with clause 10.3, the Lessee will be taken to have made the Land
free from any Significant Public Hazard.
10.7.5 Must immediately remedy any damage caused to the Land in the
course of removal of the Lessee's Property and/or the Track
Infrastructure.
10.7.6 If the Lessee does not remedy any damage under clause, the
Lessor may do so at the Lessee's cost.
10.7.7 If the Lessee does not remove any Lessee's Property which it is
required to remove from the Land or from any place where it is
stored by the Lessor within seven days of being asked to do so
by the Lessor, that Lessee's Property (if the Lessor so elects)
becomes the property of the Lessor at no cost to the Lessor.
11. HAZARD REMOVAL
11.1 APPLICATION
This clause sets out the Hazard Removal Obligation that may
arise in circumstances set out in clause 4 or clause 10.
11.2 MEANINGS
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
11.2.1 Hazard Removal Obligation is the obligation of the
Lessee to remove or make safe any Significant Public
Hazard, by carrying out Hazard Removal Work;
11.2.2 A Significant Public Hazard is:
11.2.2.1 a tunnel, underpass, building bridge or other
structure which is unfit for use for its
intended purpose,
11.2.2.2 Contamination, other than Existing
Contamination as defined in clause 14,
11.2.2.3 an excavation, or
11.2.2.4 any inherently dangerous substance or thing,
located on the Land at the time of expiry or termination
of this Lease or located on a part of the Land
surrendered under clause 4.
11.2.3 Hazard Removal Work is:
11.2.3.1 with respect to a tunnel, underpass,
building, bridge or other structure,
demolition, removal of debris and levelling
of the site, or, at the Lessee's option,
permanently precluding physical access to, or
making good to the extent that the building
bridge or other structure is not unsafe for
any member of the public in, on or in its
vicinity;
11.2.3.2 with respect to Contamination, removal or
making harmless;
11.2.3.3 with respect to an excavation, filling in and
compacting;
11.2.3.4 with respect to an inherently dangerous
substance or thing, removal;
carried out safely, to a good workmanlike standard, and
without causing any unnecessary danger or damage to the
Land, to Track Infrastructure or to any persons.
11.3 EXCLUSION OF OBLIGATION
No Hazard Removal Obligation will attach to a Significant Public Hazard;
11.3.1 if it is also Track Infrastructure (other than tunnels and
bridges) acquired by the Lessor under clause 4 or clause 10; or
11.3.2 if it existed at the Commencing Date and is located on a part of
the Land on which a Non-Operational Line is located.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
11.4 ATTACHMENT OF OBLIGATION
Subject to the preceding subclause, a Hazard Removal Obligation
attaches to:
11.4.1 any Significant Public Hazard with respect to which the
Lessor gives a Hazard Removal Notice under clause 4 or
clause 10; and
11.4.2 any Significant Public Hazard which is not identified by
the Lessee in a Notice of Value and Condition.
11.5 DISCHARGE OF OBLIGATION
A Hazard Removal Obligation is discharged:
11.5.1 when the Lessee has carried out the Hazard Removal Work;
or
11.5.2 in respect of a Significant Public Hazard not identified
by the Lessee in a Notice of Value and Condition, upon
the expiry of two years after the surrender of the part
of the Land on which the Significant Public Hazard is
located, if the Lessor has not within that time given
the Lessee a notice identifying that Significant Public
Hazard and requiring Hazard Removal Work to be carried
out on that Significant Public Hazard.
12. FORCE MAJEURE
12.1 DEFINITION
A "Force Majeure" circumstance is an event or circumstance
which, or the consequences of which, the party affected cannot:
12.1.1 (in the case of the Lessee) control or influence to the
extent necessary to permit the conduct of Railway
Operations or Minimum Service Requirements; or
12.1.2 avoid through prudent management processes, policies and
precautions, including (without limitation) through the
use of alternate resources and work around plans (in the
case of the Lessee, consistent with best railway
industry practices).
12.2 SPECIFIC CIRCUMSTANCES
Subject to clause 12.1, a Force Majeure Circumstance may
include:
12.2.1 fire, flood, earthquake, elements of nature of acts of
god, malicious damage, explosion, sabotage, toxic or
dangerous chemical contamination (other than as a result
of the Lessee's non-performance) riot, civil disorder,
rebellion or revolution in Australia;
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
12.2.2 any failure by the Lessor or the Lessee to perform its
obligations in accordance with the Lease;
12.2.3 Existing Contamination on the Land as defined in
clause 14;
12.2.4 any change in the law which changes the manner in
which the Lessee can lawfully perform Railway
Operations;
12.2.5 anything done by SACBH or another party purporting to
exercise any reservation under clauses 5.2, 5.4, 5.5,
5.12 or 6.2(c) if and to the extent that the rights so
reserved are exceeded;
12.2.6 the cessation of any activity in order to avoid an
obligation to pay significant compensation in respect
of a native title claim in respect of a part of the
Land, to the extent that, if paid, the use of that
part of the Land may become uneconomic.
12.2.7 a refusal of consent by the Lessor to the Lessee under
clause 6.2.6 or clause 6.2.7, if the Lessor's refusal
would be unreasonable were it not for the provisions
in these clauses by which refusal on the grounds of an
opinion concerning regional economic or employment
conditions is taken to be reasonable.
12.2.8 the absence of legislation or statutory instrument
exempting the Initial Track Infrastructure from the
requirements of planning legislation.
12.3 EXPENDITURE
The expenditure of money by a party is not a Force Majeure
Circumstance.
12.4 EFFECT
The obligations of a party under this Lease and any
corresponding entitlement of the other party arising out of a
failure to satisfy such obligations will be suspended to the
extent and for so long as the performance of the first-mentioned
party's obligations are prevented or delayed by a Force Majeure
Circumstance.
12.5 OBLIGATION TO WORK AROUND
The party affected by a Force Majeure Circumstance must use its
best endeavours to work around or overcome the effect of the
Force Majeure Circumstance.
12.6 NOTIFICATION
The claiming to be affected by a Force Majeure Circumstance must
notify the other party of a Force Majeure Circumstance as soon
as the affected party becomes aware that such a circumstance is
preventing it from complying with its obligations and in any
event promptly upon being notified by the other party of a
breach or failure in respect of which the affected party claims
to rely on the Force Majeure Circumstance.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
12.7 ABATEMENT OF RENT
Notwithstanding the preceding subclause, the Lessee's obligation
to pay rent will not be suspended by reason of a Force Majeure
Circumstance, but if and to the extent that;
12.7.1 any part of the Land is rendered unusable for its
accustomed purposes; and
12.7.2 the Lessee has notified the Lessor of the part of the
Land rendered unusable and the reasons why it is
unusable;
Commercial Rent otherwise payable in respect of that part of the
Land will be reduced by a proportion equivalent to the
proportion of a year during which the part of the Land remains
unusable for the purpose of Railway Operations.
13. GENERAL
13.1 NOTICES
13.1.1 For the purpose of this clause notice means a notice,
consent, approval or other communication under this
Lease.
13.1.2 A notice must be signed by or on behalf of the person
giving it, addressed to the person to whom it is to be
given and:
13.1.2.1 delivered to that person's address;
13.1.2.2 sent by pre-paid mail to that person's
address; or
13.1.2.3 transmitted by facsimile to that person's
address.
13.1.3 A notice given to a person in accordance with this
clause is treated as having been given and received:
13.1.3.1 if delivered, on the day of delivery if
delivered before 5.00 pm on a Business Day,
otherwise on the next Business Day;
13.1.3.2 if sent by pre-paid mail, on the third
Business Day after posting; or
13.1.3.3 if transmitted by facsimile and a correct and
complete transmission report is received, on
the day of transmission if the report states
that transmission was completed before 5.00 pm
on a Business Day, otherwise on the next
Business Day.
13.1.4 For the purpose of this clause the address and facsimile
number of a person are those set out below that person's
name in the relevant Item in Schedule 2 or another
address of which that person may from time to time give
notice to each other person.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
13.2 COMPLIANCE WITH LAW
The Lessee must comply with all applicable Laws in the conduct
of Railway Operations and any other activity on the Land.
13.3 GOVERNING LAW
This Lease is governed by the law in force in South Australia
and the parties submit to the non-exclusive jurisdiction of the
courts of South Australia and any courts which may hear appeals
from those courts in respect of any proceedings in connection
with this Lease.
13.4 WAIVER
13.4.1 The non-exercise of or delay in exercising any power or
right of a party does not operate as a waiver of that
power or right, nor does any single exercise of a power
or right preclude any other or further exercise of it or
the exercise of any other power or right. A power or
right may only be waived in writing, signed by the party
to be bound by the waiver.
13.4.2 The Lessor's acceptance of Rent or other money under
this Lease does not operate as a waiver of the Lessor's
rights under this Lease.
13.5 SEVERABILITY
Any provision in this Lease which is invalid or unenforceable in
any jurisdiction:
13.5.1 is to be read down for the purposes of that
jurisdiction, if possible, so as to be valid and
enforceable; or
13.5.2 if the provision cannot be read down under paragraph
(a), shall be severed if it is capable of being severed
to the extent of the invalidity or unenforceability,
without affecting the remaining provisions of this Lease or
affecting the validity or enforceability of that provision in any
other jurisdiction.
13.6 COUNTERPARTS
This Lease may be executed in any number of counterparts and all
of those counterparts taken together constitute one and the same
instrument.
13.7 FURTHER ASSURANCE
Each party must do, sign, execute and deliver and must procure
that each of its employees and agents does, signs, executes and
delivers, all deeds, documents, instruments and acts reasonably
required of it or them by notice from another party to carry out
and give full effect to this Lease and the rights and
obligations of the parties under it.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
13.8 ENTIRE AGREEMENT
Subject to any agreement under clause 8.4 and to the Agreement
to Lease:
13.8.1 this Lease is the entire agreement of the parties on the
subject matter;
13.8.2 the only enforceable obligations and liabilities of the
parties in relation to the subject matter are those that
arise out of the provisions contained in this Lease;
13.8.3 all representations, communications and prior agreements
in relation to the subject matter are merged in and
superseded by this Lease; and
13.8.4 any subsequent variation of this Lease must be in
writing in appropriate form and executed by both the
Lessor and the Lessee.
13.9 COSTS AND EXPENSES
The Lessee must pay all reasonable costs and expenses of the
Lessor in relation to:
13.9.1 the negotiation, preparation, execution, delivery,
stamping, registration, completion, renewal, extension,
variation, termination and surrender of this Lease;
13.9.2 the enforcement, protection or waiver, or attempted
enforcement or protection of any right under this Lease;
13.9.3 the consideration or giving of any consent by the Lessor
under this Lease;
13.9.4 any necessary survey of the Land whether for the purpose
of enabling this Lease to be registered or otherwise;
and
13.9.5 all stamp duty assessed in respect of this Lease and any
fees payable if this Lease is to be registered pursuant
to the Real Property Act, 1886,
including, but not limited to, any reasonable legal costs and
expenses and any reasonable professional consultant's fees for
any of the above on a full indemnity basis.
13.10 EXCLUSION OF STATUTORY PROVISIONS
The covenants, powers and provisions implied in Leases by the
Real Property Act, 1886 do not apply to this Lease.
13.11 MITIGATION
Each party must take all reasonable steps to minimise any loss
or damage resulting from a breach of this Lease by the other
party.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
13.12 PAYMENT AFTER NOTICE
13.12.1 If either party gives a notice terminating this Lease,
or the Lessor gives a notice demanding immediate
possession of the Land, the Lessor's acceptance of, or
demand for, Rent or any other money:
13.12.1.1 is not evidence of a new Lease for the
Land; and
13.12.1.2 does not alter the legal effect of the
notice.
13.12.2 If the Lessee continues to occupy the Land unlawfully
after termination of this Lease the Lessee must pay an
amount equal to the Rent (by weekly instalments) as
compensation for its occupation of the Land.
13.13 DISPUTES PROVISION
13.13.1 The parties must act reasonably and promptly and
endeavour in good faith to resolve any dispute between
them.
13.13.2 Informal Resolution
13.12.2.1 The parties agree that if any dispute arises
between them, and prior to any party
commencing legal proceedings (other than
legal proceedings seeking immediate
interlocutory or interim relief), or expert
determination that party is entitled to give
notice of such matter and the parties must
for a period of twenty (20) Business Days
following such notice thereafter ("INFORMAL
RESOLUTION PERIOD") attempt to resolve the
disputed matter informally in a timely
manner and in accordance with the procedures
set forth in this sub-clause.
13.13.2.2 The parties must with a view to resolving
the disputed matter, procure a meeting,
within the Informal Resolution Period, of
senior executives of the parties together
with such other advisers and experts who may
be able to facilitate a resolution of the
disputed matter.
13.13.2.3 Any meeting must be convened at a convenient
location in South Australia and must be
conducted in good faith such that each of
the parties approaches the disputed matter
in the spirit of mutual understanding and
collaboration.
13.13.3 ISSUES FOR EXPERT DETERMINATION
If a matter or dispute arises which is required by this lease to
be referred to an expert determination and it has not been
resolved by, or in accordance with the informal process
contained in this clause, the parties must jointly
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
appoint an independent expert ("Expert") to resolve the matter
in accordance with the following provisions of this clause.
13.13.4 If the parties cannot agree on the Expert within forty
(40) Business Days of the notice referred to in
subclause 12.13(b), they shall exchange written lists,
each identifying five (5) individuals whom the party
would accept as the Expert to determine the matter. In
the absence of an individual common to each list or if
more than one individual is common to each list, the
appointment shall be referred to the President for the
time being of the law Society of South Australia for the
selection of an Expert from one of the lists in the
former instance and to determine which of the commonly
acceptable individuals shall be appointed in the latter
instance.
13.13.5 The Expert appointed in accordance with this clause must
be required to provide a report to each party as soon as
practicable after being appointed and must otherwise
regulate the receipt of submissions and his or her
process of determination in such manner as the Expert
shall see fit.
13.13.6 The costs of the Expert appointed in accordance with
this sub-clause must be borne in accordance with a
determination by the Expert having regard to the nature
of the dispute, the respective positions of the parties
and the submissions made by them and must be otherwise,
in the opinion of the Expert, fair and equitable in all
the circumstances.
13.13.7 the determination of an Expert under the provisions of
this Lease in the absence of a manifest error of fact or
miscalculation in the reasons for the determination is
binding upon the parties.
13.14 CONFIRMATION OF COMPLIANCE WITH LEASE
13.14.1 A party (the "Requesting Party) may, in order to
ascertain its or a third party's right, entitlements or
obligations, request the other party ("the Responding
Party") to confirm in writing either that the Responding
Party agrees that a particular act, matter or thing does
or a proposed act, matter or thing would, if done,
constitute an act, matter or thing carried out in
accordance with or otherwise satisfy, in a specified
respect, the terms of this Lease (a "Positive Response")
or that the Responding party does not so agree (a
"Negative Response"). The Requesting Party shall provide
sufficient information as is reasonably necessary for
the Responding Party to make a proper assessment of the
matter.
13.14.2 On receipt of a request by a Requesting Party under this
clause or upon the receipt of the information requested
by the Responding Party pursuant to paragraph (c) of
this subclause, the Responding Party must as soon as
reasonably possible;
13.14.2.1 provide a Positive Response;
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
13.14.2.2 provide a Negative Response; or
13.14.2.3 request any additional information that the
Responding Party reasonably requires in
order to make a proper assessment of the
matter.
13.14.3 If a Responding Party gives a Negative Response then the
Responding Party shall provide sufficient details of its
reasons for reaching that response to enable the
Requesting Party to determine what acts, matters or
things the Requesting Party would have to do in order to
comply with or satisfy the provisions of this Lease.
13.14.4 If the Responding Party provides a Positive Response
then the Positive Response is binding on the Requesting
Party and the Responding Party in relation to the
application of the provisions of this Lease as to the
relevant act, matter or thing as disclosed by the
Requesting Party to the Responding Party in the notice
specified in subclause 13.14.1 only on the basis of and
by reference to the information provided to the
Responding Party by the Requesting Party pursuant to
this clause.
13.14.5 If the Responding Party provides a Positive Response and
any information provided to the Responding Party for the
purpose of making an assessment is false, misleading,
inaccurate or incomplete in a material respect, then the
Positive Response shall not be binding on the Requesting
Party and the Responding Party in relation to the
application of the provisions of this Lease as to the
relevant act, matter or thing, and the Requesting Party
is liable for any expense, loss or damage caused as a
result of reliance on the information so provided.
13.15 LESSEE'S WARRANTY
The Lessee warrants that it has not been induced to enter into
this Lease by any express or implied statement, warranty or
representation:
13.15.1 whether oral, written or otherwise;
13.15.2 made by or on behalf of the Lessor in respect of the
Land or anything relating to, or which could have an
effect on, the Land including but not limited to:
13.15.2.1 the fitness or suitability of the Land for
any purpose;
13.15.2.2 any fixtures, facilities or amenities on the
Land; or
13.15.2.3 the conduct of any other business in the
buildings located on the Land.
13.16 NO MERGER
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
The provisions of this Lease do not merge on termination.
13.17 EXCLUSION OF MORATORIUM
To the extent permitted by law, any legislation which:
13.17.1 lessens or otherwise varies or affects any obligation
under this Lease to the detriment of the Lessor; or
13.17.2 stays, postpones or otherwise prejudicially affects
the Lessor's exercise of any right, power, remedy or
discretion under this Lease,
is excluded from this Lease.
14. CONTAMINATION
14.1 DEFINITIONS
ENVIRONMENTAL LAW means any statute or common law relating to
the storage, handling or transportation of waste, dangerous
goods or hazardous material, relating to occupational health and
safety or which has as one of its purposes or effects the
protection of the environment.
ENVIRONMENTAL NOTICE means any direction, order, demand or other
requirements to take any action or refrain from taking any
action in respect of the Land or its use from any Authority,
whether written or otherwise and in connection with any
Environmental Law.
14.2 EXISTING CONTAMINATION AND COMMONWEALTH REMEDIATION
14.2.1 The Lessee acknowledges that it is aware of, and the
Lessor is not liable to the Lessee in respect of,
Contamination on the Land as at the Commencing Date
("EXISTING CONTAMINATION");
14.2.2 The parties acknowledge that the Commonwealth has agreed
with the Lessee to conduct Remediation Works on the Land
to remove or make harmless the Existing Contamination.
14.2.3 The Lessee must license the Commonwealth by its
servants, agents and contractors, to enter on the Land
for the purpose of the Remediation Works, on terms and
conditions reasonably agreed for that purpose and the
Lessor consents to the Lessee giving the Commonwealth
such licence.
14.3 COMPLIANCE WITH ENVIRONMENTAL NOTICES
14.3.1 The Lessee must, at its cost, promptly comply with any
Environmental Notice issued after the Commencing Date,
but only if and to the extent that the Contamination of
the Land has been caused or contributed to after the
Commencing Date.
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NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
14.3.2 The Lessee must give the following to the Lessor, within
7 days of receipt:
14.3.2.1 a copy of any Environmental Notice;
14.3.2.2 copies of all reports, invoices and other
documents relating to the Lessee's compliance
(if any) with an Environmental Notice; and
14.3.2.3 any other information relating to an
Environmental Notice or the Lessee's
compliance (if any) with it.
14.4 INDEMNITY
The Lessee indemnifies the Lessor against any loss, claim,
liability, cost or expense suffered or incurred by the Lessor in
respect of:
14.4.1 any Contamination of the Land caused or contributed to
by the Lessee, to the extent that the Lessee caused or
contributed to it;
14.4.2 any pollution from or to the Land after the Commencing
Date; and
14.4.3 any Environmental Notice made after the Commencing Date
except to the extent that it applies to Existing
Contamination; and
including legal costs on a full indemnity basis.
15. EXCLUSION OF COVENANTS IMPLIED BY STATUTE
15.1 REAL PROPERTY ACT
Pursuant to section 262 of the Real Property Act, 1886, the operation
of sub section 125(1) and 125(2) of the Real Property Act, 1886 is
expressly negatived and shall not be implied as a power of the Lessor
in respect of this Lease.
15.2 LANDLORD AND TENANT ACT
The operation of subsection 4(1) of the Landlord and Tenant Act, 1936
is expressly negatived and shall not be implied as a power of the
Lessor in respect of this Lease.
- --------------------------------------------------------------------------------
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
16. FURTHER ASSURANCES
The parties shall do all acts, matters and things and sign all documents
and shall cause to be done all acts necessary to give full effect to the
terms of this Lease.
17. ACKNOWLEDGEMENT THAT THIS LEASE IS NOT A "MISCELLANEOUS LEASE"
The Lessor and the Lessee acknowledge and agree that this Lease is not
and shall not be construed as being a miscellaneous lease for the
purposes of the Crown Lands Act, 1929.
- --------------------------------------------------------------------------------
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
*SCHEDULE 1 LAND
*SCHEDULE 2 ADDRESSES FOR NOTICES
*SCHEDULE 3 RAIL CORRIDORS
*SCHEDULE 4 MINIMUM SERVICES TO BE PROVIDED BY THE LESSEE
*SCHEDULE 5 SACBH AGREEMENT
*SCHEDULE 6 PART A: NATIONAL ESTATE LAND
PART B: STATE HERITAGE
*OMITTED SCHEDULES
UPON WRITTEN REQUEST, THE REGISTRANT WILL PROVIDE COPIES OF ANY OF THE
REFERENCED OMITTED SCHEDULES.
<PAGE>
SIGNED SEALED AND DELIVERED )
for and on behalf of THE CROWN IN )
THE RIGHT OF THE STATE OF )
SOUTH AUSTRALIA by )
being a duly authorised person in the
presence of:
.....................................
...........................
THE COMMON SEAL of [name of Lessee] )
was affixed in the presence of, and )
the sealing is witnessed by: )
......................................
Secretary
...........................
Name (printed):) Director
Name (printed):
SIGNED SEALED AND DELIVERED )
by [name of Guarantor] in the presence of: )
)
......................................
Witness
.........................
Name (printed):
- --------------------------------------------------------------------------------
NOTE:- Every annexed page shall be signed by the parties to the dealing, or
where the party is a corporate body, be signed by the persons who have
attested the affixing of the seal of that body to the dealing.
<PAGE>
EXHIBIT 11.1
GENESEE & WYOMING INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
BASIC EARNINGS PER SHARE CALCULATION:
- -------------------------------------
Net Income $7,998 $5,905
Weighted average number of shares
of common stock 5,250 3,829
===== =====
Earnings per share - basic $1.52 $1.54
====== ======
DILUTED EARNINGS PER SHARE CALCULATION:
- ---------------------------------------
Net Income $7,998 $5,905
Weighted average number of shares of common stock
and common stock equivalents outstanding:
Weighted average number of shares
of common stock 5,250 3,829
Common stock equivalents applicable to warrants 42 38
Common stock equivalents issuable under stock
option plans 155 99
Weighted average number of shares of common stock
and common stock equivalents - diluted 5,447 3,966
====== ======
Earnings per share - diluted $ 1.47 $ 1.49
====== ======
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF FORMATION
---------- ------------------
<S> <C>
CORPORATIONS:
- -------------
Allegheny & Eastern Railroad, Inc. Delaware
Bradford Industrial Rail, Inc. Delaware
Buffalo & Pittsburgh Railroad, Inc. Delaware
Carolina Coastal Railway, Inc.* Virginia
Commonwealth Railway, Inc.* Virginia
Corpus Christi Terminal Railroad, Inc. Delaware
The Dansville & Mt. Morris Railroad Company New York
Australia Southern Railroad Pty Limited Australia
Genesee & Wyoming Investors, Inc. Delaware
Genesee and Wyoming Railroad Company New York
Genesee & Wyoming Railroad Services, Inc. Delaware
(f/k/a Railroad Services, Inc.)
GWI Canada, Inc. Delaware
GWI Dayton, Inc. Delaware
GWI Leasing Corporation Delaware
GWI Rail Management Corporation Delaware
Illinois & Midland Railroad, Inc. Delaware
Louisiana & Delta Railroad, Inc. Delaware
Pittsburg & Shawmut Railroad, Inc. Delaware
Portland & Western Railroad, Inc. New York
Rail Link, Inc. Virginia
Talleyrand Terminal Railroad Company, Inc.* Virginia
Rochester & Southern Railroad, Inc. New York
Willamette & Pacific Railroad, Inc. New York
LIMITED PARTNERSHIP:
- --------------------
GWI Switching Services, L.P. Texas
</TABLE>
*Subsidiary of Rail Link, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into Genesee & Wyoming Inc.'s previously
filed Registration Statement on Form S-8 (Registration No. 333-09165).
/s/ Arthur Andersen LLP
Chicago, Illinois
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
STOCK FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1997
<PERIOD-END> JAN-01-1997
<CASH> 11,434
<SECURITIES> 0
<RECEIVABLES> 29,895
<ALLOWANCES> 0
<INVENTORY> 5,039
<CURRENT-ASSETS> 56,535
<PP&E> 149,434
<DEPRECIATION> 24,449
<TOTAL-ASSETS> 210,532
<CURRENT-LIABILITIES> 37,978
<BONDS> 72,978
0
0
<COMMON> 52
<OTHER-SE> 68,291
<TOTAL-LIABILITY-AND-EQUITY> 210,532
<SALES> 103,643
<TOTAL-REVENUES> 103,643
<CGS> 87,200
<TOTAL-COSTS> 87,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,004
<INCOME-PRETAX> 13,439
<INCOME-TAX> 5,441
<INCOME-CONTINUING> 7,998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,998
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,911
<SECURITIES> 0
<RECEIVABLES> 16,900
<ALLOWANCES> 0
<INVENTORY> 4,424
<CURRENT-ASSETS> 42,339
<PP&E> 110,440
<DEPRECIATION> 22,495
<TOTAL-ASSETS> 155,455
<CURRENT-LIABILITIES> 27,765
<BONDS> 30,341
0
0
<COMMON> 52
<OTHER-SE> 68,128
<TOTAL-LIABILITY-AND-EQUITY> 155,455
<SALES> 71,241
<TOTAL-REVENUES> 71,241
<CGS> 59,134
<TOTAL-COSTS> 59,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,850
<INCOME-PRETAX> 10,760
<INCOME-TAX> 4,342
<INCOME-CONTINUING> 6,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,418
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.17
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,392
<SECURITIES> 0
<RECEIVABLES> 17,922
<ALLOWANCES> 0
<INVENTORY> 4,162
<CURRENT-ASSETS> 37,738
<PP&E> 105,582
<DEPRECIATION> 20,853
<TOTAL-ASSETS> 147,580
<CURRENT-LIABILITIES> 32,204
<BONDS> 22,119
0
0
<COMMON> 52
<OTHER-SE> 65,949
<TOTAL-LIABILITY-AND-EQUITY> 147,580
<SALES> 47,571
<TOTAL-REVENUES> 47,571
<CGS> 39,365
<TOTAL-COSTS> 39,365
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 990
<INCOME-PRETAX> 7,216
<INCOME-TAX> 2,925
<INCOME-CONTINUING> 4,291
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,291
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.79
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET & INCOME STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 17,699
<SECURITIES> 0
<RECEIVABLES> 20,727
<ALLOWANCES> 0
<INVENTORY> 4,177
<CURRENT-ASSETS> 46,366
<PP&E> 103,354
<DEPRECIATION> 19,261
<TOTAL-ASSETS> 156,014
<CURRENT-LIABILITIES> 41,163
<BONDS> 24,833
0
0
<COMMON> 52
<OTHER-SE> 63,780
<TOTAL-LIABILITY-AND-EQUITY> 156,014
<SALES> 24,092
<TOTAL-REVENUES> 24,092
<CGS> 20,057
<TOTAL-COSTS> 20,057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 443
<INCOME-PRETAX> 3,592
<INCOME-TAX> 1,458
<INCOME-CONTINUING> 2,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,134
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.39
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,121
<SECURITIES> 0
<RECEIVABLES> 19,134
<ALLOWANCES> 0
<INVENTORY> 4,172
<CURRENT-ASSETS> 41,176
<PP&E> 96,687
<DEPRECIATION> 17,865
<TOTAL-ASSETS> 145,685
<CURRENT-LIABILITIES> 38,871
<BONDS> 18,460
0
0
<COMMON> 52
<OTHER-SE> 61,631
<TOTAL-LIABILITY-AND-EQUITY> 145,685
<SALES> 77,795
<TOTAL-REVENUES> 77,795
<CGS> 63,800
<TOTAL-COSTS> 63,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,720
<INCOME-PRETAX> 9,924
<INCOME-TAX> 4,019
<INCOME-CONTINUING> 5,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,905
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.49
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET & INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,613
<SECURITIES> 0
<RECEIVABLES> 14,622
<ALLOWANCES> 0
<INVENTORY> 4,405
<CURRENT-ASSETS> 27,488
<PP&E> 104,017
<DEPRECIATION> 21,997
<TOTAL-ASSETS> 127,663
<CURRENT-LIABILITIES> 19,691
<BONDS> 26,798
0
0
<COMMON> 52
<OTHER-SE> 60,001
<TOTAL-LIABILITY-AND-EQUITY> 127,663
<SALES> 54,640
<TOTAL-REVENUES> 54,640
<CGS> 44,044
<TOTAL-COSTS> 44,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,803
<INCOME-PRETAX> 7,204
<INCOME-TAX> 2,918
<INCOME-CONTINUING> 4,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,286
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.24
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996, AND CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,765
<SECURITIES> 0
<RECEIVABLES> 13,963
<ALLOWANCES> 0
<INVENTORY> 4,412
<CURRENT-ASSETS> 26,474
<PP&E> 103,005
<DEPRECIATION> 20,450
<TOTAL-ASSETS> 127,676
<CURRENT-LIABILITIES> 25,744
<BONDS> 23,879
0
0
<COMMON> 52
<OTHER-SE> 58,238
<TOTAL-LIABILITY-AND-EQUITY> 127,676
<SALES> 0
<TOTAL-REVENUES> 33,618
<CGS> 0
<TOTAL-COSTS> 28,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,007
<INCOME-PRETAX> 4,241
<INCOME-TAX> 1,718
<INCOME-CONTINUING> 2,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,523
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
